Florida-based billionaire David Hoffmann is leading a $50 million deal with Lee Enterprises, the Arizona Daily Star's owner, to buy a controlling stake in the company and become its chairman.
The deal announced Tuesday shakes up leadership and offers debt relief for Lee, a regional newspaper owner which has recorded heavy losses amid the industry's struggles to retain subscribers and advertisers as news outlets shift from print to digital.
David Hoffmann
At the same time, Lee announced that CEO Kevin Mowbray is resigning with a $1.5 million payout. Chief Operating Officer Nathan Bekke will take over as interim CEO.
Nathan Bekke
Lee's primary lender, Berkshire Hathaway Finance, has agreed to cut the interest rate for five years on the newspaper chain's roughly $450 million in debt, from 9% to 5%, saving as much as $18 million a year in interest payments.
“This transaction reflects the Board’s determination to act decisively," Mary Junck, who has been the chair of Lee's board for more than 20 years, said in a statement. “By strengthening the balance sheet and improving the company’s capital structure, we are putting the company in a better position to execute and create long-term value.”
Lee Enterprises, the Davenport, Iowa-based owner of the Star and newspapers and other publications in 70 markets, announced it had reached an agreement with Hoffmann and other investors to sell them nearly 15.4 million shares at $3.25 per share. The deal would make Hoffmann the lead investor and is expected to make him chairman of the board, Lee said in a securities filing.
The company had about 6.3 million shares outstanding as of the end of October.
Hoffmann has committed to buying up to $35 million in shares, while other investors committed up to $15 million. A Hoffmann affiliate already owned about 10% of Lee's shares. Quint Digital Limited, an Indian firm and another major Lee shareholder, said it is joining the deal with an $8 million investment, boosting its stake in the company to almost 15%.
Lee said it will hold a shareholder meeting to obtain approval for the deal and seek authorization to increase the number of shares it can issue to 40 million from 12 million.
The deal is expected to close in the first quarter.
Hoffmann has, for more than a year, expressed an interest in Lee and local news. Lee initially rebuffed his offers, extending a "poison pill" meant to keep investors like him from gaining control of the company as Hoffmann grew his stake in Lee to around 10%.
But Lee found itself without other options after abruptly canceling a shareholder meeting this month to issue additional stock to raise $50 million.
Markets cheered the Hoffmann news. Lee's stock was up 20%, to $4.50, in morning trading.
“This transaction strengthens the Company’s balance sheet and reflects the Board’s determination to take decisive action,” David Hoffmann said in a statement from Lee. “With improved financial stability and a clear governance framework in place, the focus can now be on disciplined execution and long-term value creation.”
Hoffmann, a native of Washington, Missouri, founded the Hoffmann Family of Cos., which owns commercial real estate and businesses such as Oberweis Dairy. The company made headlines buying properties and businesses in Missouri's St. Charles County wine country and in Franklin County. This month, the company announced the purchase of the NHL's Pittsburgh Penguins.
Mowbray has led Lee for the past 10 years, taking over in 2016 after Junck stepped down as CEO but remained board chair.
As CEO for 15 years before Mowbray, Junck in 2005 oversaw Lee's debt-financed $1.5 billion acquisition of Pulitzer Inc., then the publisher of the Arizona Daily Star, St. Louis Post-Dispatch and about a dozen other daily newspapers.
Lee's largest market is St. Louis, and it also owns newspapers, including the Omaha World-Herald and Buffalo News.
The last year has been particularly rough for Lee. In February, a cyberattack upended operations and disrupted delivery at several of its newspapers. It deferred several months of $3.7 million interest payments to Berkshire Hathaway in order to raise enough capital to recover.
Its stock has fallen more than 70% since January, down from over $14 per share.
In the wake of the attack, Hoffmann expressed interest in buying Lee. Hoffmann has said he is a believer in local news, telling The New York Times last year that print newspapers are “a key part of the American fabric.”
“These local newspapers are really important to these communities,” Hoffmann told the Times. “With the digital age and technology, it’s changing rapidly. But I think there’s room for both, and we’d like to be a part of that.”
A spokeswoman for Hoffmann declined to comment further on the deal Tuesday afternoon.
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