A federal judge Wednesday threw out a key legal contention by Hollywood producer Burt Sugarman that all shareholders of Media General must vote as a single group on his $1.8-billion merger proposal for the family-controlled newspaper and television empire.
Although U.S. District Judge Richard L. Williams in Richmond, Va., did not dismiss six other counts in Sugarman’s suit, Media General claimed a major victory in its fight against the unwelcome offer. The Sugarman forces contended that other allegations remain before the court that would permit shareholders to vote in a single class on the offer.
Media General, which is based in Richmond, has two classes of stock, with Class B shares holding greater voting power than Class A.
The company said the ruling in effect allows Chairman D. Tennant Bryan and his family to continue voting their Class B shares separately. By extension, the family could still determine the outcome of any vote on Sugarman’s $61.50-per-share offer.
Class A Stock Rises
Sugarman, who has repeatedly said he will not back away from the fray, also is waging a proxy fight to win the three directors’ seats chosen by Class A stockholders. The Bryan family controls the other six board positions through its ownership of 71% of the Class B stock. The election of directors will be held at the company’s May 20 annual meeting.
Even Media General supporters have conceded that Sugarman and his associates have a good chance to win the three seats with the help of large institutions, which control about 50% of the Class A shares.
The company’s Class A shares rose 12.5 cents to close at $48.50 Wednesday on the American Stock Exchange. The stock was down sharply after Judge Williams’ ruling but rose later following a Dow Jones news report that observers expect the company to seek alternatives to seating Sugarman directors in the event they win the seats.
The report said such alternatives include a recapitalization or taking the company private in a leveraged buyout by management.
However, David L. Jordan, Media General’s vice president for finance, denied in a telephone interview that the company was considering any of those things. He called the report “pure fiction.”
As for the growing expectation that Sugarman may win the proxy contest, Jordan said: “We’ve known all along that institutional investors would be the hardest to convince that a long-term investment is in their best interests. But we’ve had a very favorable response from a number of them.”
In dismissing one of seven counts in Sugarman’s lawsuit, Judge Williams gave a terse ruling from the bench after both sides argued their positions. He is to file a written opinion later. Edward Brodsky, Sugarman’s attorney, said he would appeal the ruling.
No Fallout Expected
Meanwhile, the court’s action Wednesday was expected to have no specific effect on other publishing companies in which families maintain voting control through dual stock classes, according to several lawyers and analysts.
However, the Sugarman bid already has caused one major publisher, Washington Post Co., to ask shareholders to strengthen the Graham family’s control by modifying its charter, which is similar to Media General’s. A vote will be taken at the May 12 annual meeting. “The tactics used by Sugarman made us think it was appropriate to take this step,” a Post spokesman explained.
A spokeswoman for Times Mirror Co., which publishes the Los Angeles Times, said its shareholders last Nov. 30 approved a proposal that authorized two new classes of shares with different voting powers from existing common stock.