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Icahn – companies could become takeover targets after the spilt-off

Samantha Nielson

Gannett's split-off plans and activist push from Carl Icahn (Part 6 of 7)

(Continued from Part 5)

Icahn recommends corporate governance changes

In his letter, Carl Icahn stated that while he was “pleased” with Gannett’s (GCI) split-off plans, he was “concerned about decisions the Gannett board may make now in anticipation of the spin-off that could prevent stockholders of both companies from realizing the highest value for their shares.”

Icahn believes that after Gannett’s split-off, the resulting two publicly traded companies could become takeover targets. He added that in such an event, shareholders should have the final say as to whether or not to accept the offer.

The activist investor recommended proposals for Gannett’s board. The proposals were related to corporate governance at both companies. The proposals included a provision that would block the board from adopting a poison pill without the support of majority shareholders.

Another proposal was to allow special meetings to be called by shareholders that only own 10% of the stock. Icahn has been successful in pushing for similar proposals at eBay (EBAY) ahead of the company’s spin off of PayPal.

Poor communication on split-off resulted in a decline in stock price

Icahn also sought to nominate Michael Dornemann and Courtney Mather to Gannett’s board. A letter from Icahn noted that the company’s poor communication on the split-off resulted in Gannett’s stock being down over 8%, as of January 2015, from the date the separation was announced.

The activist investor believes that the company’s stock declined since the planned announcement of the split-off. The announcement didn’t sufficiently explain to “investors the capital structure, debt capacity and business strategy for each of the post-spin companies.” He added that there was a “particular lack of clarity” over the publishing business. This led to a “fundamental misunderstanding of that company’s future prospects.”

Icahn said his board nominees Dornemann and Mather “would provide the substantive insight necessary for the Gannett directors to better consider how to structure and communicate the spin process.”

Previously, we noted that media companies are separating slow growing publishing operations from their profitable divisions. Last year, Time (TIME) separated from Time Warner (TWX) and Tribune Publishing (TPUB) was spun off from Tribune Media Company (TRCO).

Spin-offs have also been used to unlock value. This was seen with Graham Holdings (GHC). Recently, it announced the separation of its cable division. You can gain exposure to spin-offs by investing in the Guggenheim Spin-Off ETF (CSD).

Continue to Part 7

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