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Originally published Saturday, July 2, 2011 at 9:15 PM

Fisher Communications moves forward after board election squabble

Fisher Communications CEO Colleen Brown figures a months-long legal battle cost the company $1.4 million. It also took management's time and energy during an economic downturn that has been particularly hard on media companies.

Seattle Times business reporter

Fisher Communications

Founded: 1910 as a flour-milling operation

First station: KOMO Radio in 1926

Headquarters: Fisher Plaza near Seattle Center

Stations: 20 TV stations, including KOMO and KUNS in Seattle; eight radio stations, including KOMO-AM/FM, KVI-AM and KPLZ-FM in Seattle

Employees: 828, about a third of them in Seattle

2010 revenue: $175.9 million

2010 profit: $9.7 million

quotes Considering the economy Fisher is doing okay. Hang in there. Read more
quotes So called media companies are really just advertising outlets, doing whatever they can... Read more

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The future of Fisher Communications, one of Seattle's oldest companies, remains a mystery even to the people closest to it.

The owner of 28 TV and radio stations, including KOMO-TV in Seattle, recently battled its way through a months-long onslaught by hedge-fund manager David Lorber, who joined Fisher's board two years ago at the behest of its largest shareholder, Mario Gabelli.

Fisher CEO Colleen Brown figures the legal battle cost the company $1.4 million. It also took management's time and energy during an economic downturn that has been particularly hard on media companies.

At first, Lorber and his firm, FrontFour Capital Group of Connecticut, appeared bent on pushing Fisher to sell — something Gabelli has been predicting since 2003.

One of the country's smallest publicly traded broadcast companies, Fisher has posted operating losses for five of the past 10 years. Most of the losses came early in the decade. More recently, Fisher has suffered along with other broadcasters from declines in advertising.

Consolidation of media companies has made competition difficult for relatively small players like Fisher. They compete in a field dominated by giants such as Rupert Murdoch's News Corp. and General Electric's NBC Universal division.

Together, they face threats from cable television, iPhone apps and shrinking advertising revenue.

More mergers are expected as companies try to combine resources and operate more efficiently, often through job cuts. But consolidation has been on hold during a recession that diminished the buying power of even the biggest players.

Rather than wait, FrontFour lined up a suitor for Fisher — a Canadian real-estate company it controls.

FrontFour gained control of the board of Huntingdon Real Estate Investment Trust a few years ago after accusing that company of overpaying for acquisitions.

Battle for control

In December, Huntingdon showed an unsolicited interest in buying Fisher. When it was rejected, FrontFour lined up four new candidates for Fisher's board and launched an extensive proxy fight.

It initially focused on the fact that Fisher had turned down Huntingdon and an unnamed suitor in 2008.

"It is unacceptable for the board to reject acquisition proposals for the company when shareholder value continues to deteriorate under this board's watch," FrontFour said in a January filing.

Fisher fought back, pointing out that it never had formal offers. CEO Brown recently reiterated that Huntingdon's informal proposal of $23.99 a share was "a lowball level of interest and not in the best interests of our shareholders." At that time, Fisher's shares were trading below $23; they closed Friday at $29.98.

Brown said Fisher turned away the other, unnamed suitor because it was so highly leveraged, and that it subsequently filed for bankruptcy.

FrontFour's proxy filings quickly changed. It began to use the same argument that had given it control of Huntingdon, saying Fisher had overpaid for acquisitions.

FrontFour also complained about a potpourri of strategy issues and appeared not to know what it wanted. For example, in one filing it said both that it was not trying to take over the board and that it had an operating plan for the company.

FrontFour's plan included lowering news-production costs, something Brown has done in recent years by cutting 20 percent of Fisher's work force. FrontFour also said it wanted Fisher to share certain production services among its stations, something it already does.

Investor tycoon Gabelli, who started bulking up on Fisher stock in 2003, said he voted for FrontFour's candidates to create diversity on the board.

"We just didn't want to stack the board with too many broadcasters. You'd like to have a more diverse board," he said in a telephone interview.

Attempt to sell plaza

Gabelli said he likes Fisher's management but wants it to be careful about how it spends money from the possible sale of its headquarters building, Fisher Plaza.

The plaza is a two-building, 300,000-square-foot spectacle near the Space Needle that has giant satellite dishes atop one roof.

Just as the real-estate market crashed, Fisher was close to selling the plaza, which it valued at $106 million in securities filings.

"We were in the final rounds with the final three bidders, and one by one they were unable to get credit," Brown said.

She said she thinks it might be time to look for buyers again, and in March hired Moelis & Co. as a financial adviser to find out how much the plaza might fetch.

She said she plans to use the proceeds to pay off Fisher's $100 million of debt, which makes Gabelli happy.

If there is anything left, he wants it to be used to reduce Fisher's number of shares, which would make his own investment worth more.

"We like stock cap shrink — perhaps a Dutch auction for the shares," he said, referring to an unusual method for repurchasing stock that allows a company to pay a lower price than it would in a traditional buyback.

Gabelli said he was disappointed when Fisher paid $55 million — most of it cash from the sale of some of its Safeco stock — to buy two TV stations in Bakersfield, Calif., in 2008.

He denied pushing Fisher to sell the stock, but a 2007 securities filing includes a letter he wrote to Brown saying, "[W]e believe Fisher should focus on ways to monetize Fisher's Safeco holdings in a way to reduce the shares outstanding in a material way."

Choices limited

Brown says she had little choice about how to spend the cash.

Restrictions on Fisher's senior notes prevented the company from buying back shares or issuing dividends, she said. And she could not use the money to pay down that debt because Fisher had no ability to call back the notes, which were trading too high to buy back.

In May, Gabelli and his affiliates used their 28 percent ownership in Fisher to give FrontFour enough votes to put two of its four candidates on the board. With Lorber, the hedge fund now has three seats out of nine.

Lorber and new board member Matthew Goldfarb, a portfolio manager at Fourth Street Holdings in Knoxville, Tenn., New York and West Palm Beach, Fla., declined to comment for this story. The other new board member, Joseph Troy, chief financial officer of Quality Distribution in Tampa, Fla., did not return calls.

Although Fisher's board now includes three dissidents, experts say that does not necessarily mean its board — which meets this month — will be divisive.

Sometimes dissidents gain the confidence of other board members, said Nell Minow, a corporate-governance expert and board member of Governance Metrics International.

"By definition, these are acrimonious situations," she said, "and just like other acrimonious situations, sometimes people find a way to act grown up, and sometimes they don't."

Melissa Allison: 206-464-3312

Seattle Times business reporter Drew DeSilver contributed

to this report.

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