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Thursday, August 02, 2007

Power play over fate of Sun-Times - Hollinger takes over board, talks of sale

Power play over fate of Sun-Times - Hollinger takes over board, talks of sale
By James P. Miller and Phil Rosenthal
Copyright © 2007, Chicago Tribune
August 2, 2007


The controlling stockholder of the parent company of the Chicago Sun-Times disclosed Wednesday that it has seized control of the company's board of directors in a move that may put the flagship newspaper and dozens of suburban papers on the auction block.

Canadian holding company Hollinger Inc., the controlling shareholder of Sun-Times Media Group Inc., said it made use of its majority voting stake to unilaterally remove three sitting directors from the Chicago company's board. It also expanded the Sun-Times Media Group board from eight to 11 members, and placed six Hollinger representatives on it.

The power play positions the Toronto firm to exert a vast amount of control over the Chicago company's future, including whether the stable of papers are sold.

The maneuver faces at least one potential obstacle. Since a scandal blossomed at the Sun-Times' parent company over the activities of then-controlling stockholder Conrad Black, a federal monitor has been in place to protect the interests of minority shareholders. The monitor, Richard Breeden, former head of the Securities and Exchange Commission, has the power to undo Hollinger's board shuffle.

Sun-Times Media said Wednesday that it has notified Breeden of Hollinger Inc.'s latest actions, "in connection with his mandate to take all actions he deems appropriate to protect the interests of the company's [minority] holders."

The company said it will "also continue to evaluate its full range of options" regarding Hollinger's actions. A Sun-Times Media spokeswoman declined to elaborate.

Hidden assets?

At a Wednesday bond hearing for Black in federal court in Chicago, Hollinger Inc. refused to release any of Black's money and accused him of hiding about $60 million in assets. Black had sought transfer of funds from Canada to increase his $21 million bond to comply with a request from U.S. District Judge Amy St. Eve. Because more money wasn't forthcoming, Black was ordered to remain in the U.S. until his Nov. 30 sentencing.

Also on Wednesday, debt-heavy Hollinger Inc. filed for bankruptcy protection both in the U.S. and Canada, a move to protect its assets from creditors.

Hollinger has previously expressed unhappiness regarding Sun-Times Media's direction and, in June, indicated it was planning to establish a presence on the board by nominating two directors at some point in the future.

While Sun-Times Media Chairman and Chief Executive Cyrus Freidheim has publicly described plans to forge ahead as an independent company, Hollinger CEO G. Wesley Voorheis told Freidheim in a June 11 letter that the controlling stockholder thinks the company should instead begin reviewing "all the strategic alternatives" available to maximize shareholder value.

In the corporate world, that phrase is generally a euphemism for putting a company up for sale. On Wednesday, the Canadian company bared its teeth.

"The concerns we expressed [in the June letter] remain, and have been heightened as the value of Sun-Times shares continues to decline," Voorheis said in a statement.

"We have always believed that Sun-Times should implement a formal strategic process to enhance value for all Sun-Times shareholders," he reiterated, adding that Hollinger's surprise move to claim board control is "consistent with" that view.

Acknowledging Breeden's continued authority, Voorheis said that Hollinger Inc. does "not intend to interfere in any way" with the monitor's obligations or with a Sun-Times Media board committee overseeing a thicket of long-running, nine-figure litigation that exists between the Chicago and Toronto companies.

The issue is far from simple, however, because the relationship between the two companies is a relic of the Byzantine ownership structure established by Black, its now-disgraced former owner convicted of fraud and obstruction of justice in a Chicago U.S. federal courtroom last month.

Controlling stake

Toronto-based Hollinger owns a 20 percent equity stake in Sun-Times Media but controls a 70 percent voting position through a class of "supervoting" stock. Hollinger Inc. was once headed by Black, who also served as CEO of Hollinger International Inc., the Chicago newspaper holding company now known as Sun-Times Media Group.

Black was ousted in late 2003 from his post at Hollinger International, and he later lost control of Hollinger Inc.

Sun-Times Media Group is scheduled to announce its second-quarter results Wednesday.

Like most newspaper publishers, Sun-Times Media is saddled with eroding circulation as readers -- and advertising dollars -- migrate to the Internet.

Black-era legacies

Black's tenure as head of the company was marked by indifferent management and underinvestment, and a circulation-inflation scandal surfaced at the flagship paper soon after he and Sun-Times Publisher F. David Radler were ousted.

In another legacy of the Black era, the company has been forced to spend heavily on legal and accounting costs linked to the scandal.

In 2006, those factors helped give the company a net loss of $56.7 million in 2006, a deeper deficit than the $11.6 million loss it reported in 2005, and revenue declined 9 percent to $418.7 million.

But in the first quarter of this year, its net loss eased to $4.8 million from $7.8 million, despite an 11 percent decline in sales, to $91.3 million.

Currently, the stock market values Sun-Times Media at just $357 million.

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Sun-Times Media

Assets: More than 100 newspapers, including Chicago Sun-Times, Daily Southtown, Post-Tribune, daily papers in Joliet, Elgin, Aurora, Naperville and Waukegan, and the 58 weekly papers in the Pioneer Press.

Income: Last year, the company reported a net loss of $56.7million.



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jpmiller@tribune.com

philrosenthal@tribune.com

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