Cumulus Media has become the latest radio broadcaster to make a defensive move to thwart a potential hostile takeover of the company from an opportunistic investor looking to exploit its sagging stock price. The company said Thursday that it adopted a short-term shareholder rights plan, also known as a “poison pill,” to protect shareholder interests and maximize value for all shareholders.
Cumulus cites the impact of COVID-19 on its stock prices. Shares of “CMLS” are down 77% since the start of 2020, closing at $3.91 in New York on Thursday. The company says that doesn’t reflect its “inherent value or business performance.”
Cumulus says the maneuver is “intended to promote the fair and equal treatment of all shareholders by preventing a creeping change of control without an appropriate premium and on terms that would not deliver sufficient value for all shareholders.”
Importantly the plan is in effect for less than a year, expiring April 30, 2021.
Such plans make takeover attempts more costly and difficult by giving existing shareholders the right to buy additional stock at a discount.
Cumulus spelled out the terms in a regulatory filing. Existing shareholders are granted a right for each share of Class A or Class B stock or warrant they currently own. The rights – which can only be exercised if someone acquires 10% (20% for a passive investor) or more of the company’s Class A shares – allow shareholders to buy additional Cumulus stock at a 50% discount. The acquiring person doesn’t get this right. The plan has a similar provision if Cumulus is acquired in a merger or other combination after an unapproved party buys 10% of the stock (20% for a passive investor). And just to be safe, the poison pill is also triggered if somebody who already owns a 10% stake in Cumulus buys more than 1% of the company’s outstanding Class A shares on the open market.
A frequent Wall Street tactic, the intent is to reduce the likelihood that anyone can gain control of Cumulus by buying up a large swath of stock on the open market without paying shareholders a premium or giving the Board the chance to approve the change in control. The move forces the bidder to negotiate with the board instead of engaging directly with the shareholders.
Entercom adopted a shareholder rights plan on April 20 and iHeartMedia on May 6. Other publicly traded companies, such as Six Flags Entertainment, Global Eagle Entertainment, Hilton, Groupon, Gannett and Chico’s, have made similar defensive moves amidst a stock market roiling from the pandemic’s impact on the economy.
Deal Point Data says 17 companies announced traditional poison pills in March, followed by 19 in April, according to The Hollywood Reporter. April had the highest number since it started tracking this data in 2017.
"Many lawyers and other outside advisers are advising boards, particularly in the U.S. but in other markets also, to consider adopting poison pills or other defensive measures to protect against any threat of opportunistic bidders in the wake of recent stock price shocks," shareholder advisory firm ISS noted in an April 8 note, as reported by The Hollywood Reporter.
It’s not the first time Cumulus has adopted an anti-takeover defense. The company made a similar maneuver in June 2017 when its share price was trading well below the $1 mark.