Lear-Perenchio Offer for Evening News Barred

Hollywood executives Norman Lear and A. Jerrold Perenchio suffered a setback Wednesday in their hostile takeover bid for Evening News Assn. in Detroit when a federal judge ruled that their tender offer for the company violated Michigan law.

At the same time, shareholders and investment bankers say the offer already may have triggered a bidding war that could force Evening News Assn.--owner of the city’s largest newspaper, the Detroit News, as well as two radio stations and five televisions--to be sold.

U.S. District Judge Robert E. DeMascio ruled that the Michigan Take-Over Offers Act, a state law designed to inhibit hostile takeovers, did apply to Lear and Perenchio’s $453-million offer. Lear and Perenchio had argued that the law was unconstitutional.

Under that law, Lear and Perenchio must notify state regulators before tendering any offer, and the state has the right to hold hearings on the bid. The law also imposes several other restrictions, making it more difficult for Lear and Perenchio to win any hostile takeover derby.

Lear and Perenchio said they would appeal the ruling to the 6th Circuit Court of Appeals, but the court decision will eliminate their chief advantage--being first at the table. Their offer was due to expire Aug. 23.

Despite the apparent victory for Evening News management, which has maintained that the company is not for sale, some shareholders and Wall Street bankers believe that the Lear-Perenchio offer already may have succeeded in forcing change on the company, which runs one of the last family-owned major newspapers in the country. As a result of the Lear-Perenchio offer, they said, the company is likely either to be sold or at least restructured.

Insiders say a significant share of the 300 or so Evening News shareholders, dissatisfied with the financial return that they receive, already were pressuring for such changes. Most of the shareholders of the closely held company are heirs of Evening News founder James E. Scripps. A few shareholders are financial institutions.

Lear and Perenchio’s offer of $1,000 a share, these officials said, served to set a minimum price for the company, and since, it was made public July 29, other potential buyers have come forward offering more.

Porter Bibb, an investment banker with Ladenburg, Thalman & Co. in New York who was retained by a dissident shareholder group that is trying to arrange a sale, said he has had inquiries from potential buyers offering more than $1,200 a share.

Among those reportedly interested, according to other shareholders, are Gannett, Hearst, New York Times, Southam (owner of the Montreal Gazette in Canada) and Wesray Corp., an investment company in which former Treasury Secretary William E. Simon is a partner.

The escalating bidding will force the company either to sell voluntarily, to restructure itself to raise profitability or to sell out to the highest bidder despite the objections of current management, some shareholders believe.

“The number of shareholders who want to keep the company is becoming fewer as the price they are offered gets higher,” said John Booth II, an executive of Booth American Co., whose 5% share of Evening News makes it one of the largest single shareholders.

Booth, a cousin of the founding family, said he would prefer that current management keep control of the company but that he would like to see a restructuring of the corporate assets to improve on the 4% profit margin.

“The fact of the matter is, there is an extremely large percentage of shareholders who want out,” Booth said. “It’s possibly less than 50%, but they want to sell. They want to sell now. And they will sell to somebody.”

Some involved believe that management was ready to sell the company voluntarily had the court ruling gone the other way.

And investment banker Bibb, whose company has been retained by about 23% of the shareholders to solicit buyers for Evening News, said he still understands that “the company is going to make an announcement that they are for sale or are recommending a sale to a ‘white knight’ (a friendly suitor) before the end of the week.”

Management Says No

Bibb said the Evening News board of directors made the decision last Friday and informally alerted key shareholders of it late last week.

Booth and others, however, say they have been informed by management that this is wrong and that the company is not for sale.

Mike Davis, a spokesman for Evening News Assn., reiterated the comments of Evening News Chairman Peter B. Clark in an interview with The Times last week that the company was not for sale and that management would do everything possible to fight the tender offer.

Lear and Perenchio were unavailable for comment.

Although the Detroit News, with a daily circulation of 666,949, is reportedly losing money, the other portions of the company are profitable, according to industry analyst John Morton of Lynch, Jones & Ryan. The News also is currently ahead in a rivalry for the Detroit newspaper market with the Free-Press.

Among the most desirable properties is WDVM-TV in Washington, the No. 1-rated station in the nation’s capital and a CBS affiliate.

Evening News also owns nine small dailies and weeklies in California and New Jersey, including the Desert Sun in Palm Springs.