Lawndale Capital Management Sends E-Mail to Reading Critical of Board's Disclosure Failures and Warns of Legal Liability
Late on January 31, 2019, Bloomberg News reported that an investment group led by Patton Vision, LLC, TPG and Madison Dearborn Partners has made a new (its fourth) takeover offer to purchase all of of Reading International’s Class A and Class B shares (NASDAQ: RDI, RDIB) for $444 million. This value equals an average of $19.28 for each of Reading’s 23,017,141 Class A and B shares outstanding.
According to a letter, dated January 17, 2019, that Bloomberg has obtained, Patton Vision has urged Reading’s board to consider its offer as part of a strategic review. In a prior November 9, 2018 response from Reading to Patton Vision, Reading refused to consider Patton Vision’s last (since expired) acquisition proposal made November 5, 2018, also purportedly for $444 million. That letter from Reading, filed as an 8-K exhibit found HERE, stated Reading’s board would next conduct an “annual” review of the company’s strategic business plan in “early 2019” and would consider an offer at that time. Patton Vision’s new active offer presumably removes from the Reading Board the obvious excuse it would have made that the prior bid was “expired”.
Patton Vision previously made bids for all of Reading’s Class A and Class B shares in May 2016 and September 2016 for $17.00 per share. In December 2016, Patton Vision increased its bid to $18.50 per share for each class of Reading’s shares. Patton Vision’s December 19, 2016 press release accompanying that last offer can be viewed HERE. The Patton Vision bidding consortium includes TPG, a global private investment firm with over $70 billion of assets under management, private equity firm Madison Dearborn Partners, which acquired (and took public again) large movie exhibitor Cinemark (CNK), and the Santo Domingo Group, which owns and operates businesses in a diverse group of industries including consumer and media, such as a multi-billion dollar stake in AB InBev and ownership in Cine Colombia, one of South America’s leading exhibition companies.
Lawndale Capital Management, LLC and its affiliated funds have been one of the largest independent shareowners of Reading for many years. Following the Bloomberg report that Patton Vision’s new offer was sent as early as January 17, 2019, Andrew Shapiro, Managing Member and President of Lawndale, sent an e-mail (the full text of which is set forth below) to Reading’s Chair/CEO Ellen Cotter, Vice Chair Margaret Cotter, and other members of Reading’s Board, criticizing Reading’s failure to timely and fully disclose the receipt and terms of Patton Vision’s new takeover proposal that offers a price higher than that ever seen by RDI shareholders during Cotter family control or execution of the current strategic business plan. The email warns of the serious legal liabilities that such failure to timely and fully disclose may create.
As a result of the California Superior Court in the Cotter Trust litigation ordering the appointment of an independent Trustee Ad Litem for purposes of negotiating with Patton Vision and soliciting other offers for the Trust’s approximately 67% controlling block of Reading’s Class B voting stock, Reading’s Board has already appointed a Special Independent Committee. Lawndale feels that this Special “Independent” Committee ought to engage and negotiate with Patton Vision to determine its maximum price before rejecting any transaction out of hand. Moreover, we think Reading’s directors are only equipped to make fiduciarily-required informed and independent judgements regarding Patton Vision’s and any other potential bids and any other higher value-added alternatives with the assistance of objective, experienced outside financial advisors. There has been no announcement of the retention of financial advisors, only multiple years of legal advice costing tens of millions of dollars all towards keeping the Cotter family running and employed by Reading.
Lawndale’s January 31, 2019 E-Mail to members of Reading International’s Board follows:
Members of Reading International’s Board,
As you know, Lawndale Capital Management, LLC and the funds we manage have been and remain very large shareholders of both the Class A (RDI) and Class B shares (RDIB) of Reading International. It is with great dismay that I read the January 31, 2019 Bloomberg news report (set forth below) saying they are in possession of a letter renewing the previously expired acquisition proposal from a credible strategic consortium led by Patton Vision, LLC.
What dismays me is not that the company received an all-cash bid from a group of multi-billion dollar funds, including TPG and Madison Dearborn Partners at a valuation reflecting a premium to any value Reading has seen so far during the Cotter sister’s business plan or that the Patton Vision group is willing to negotiate and offer an even higher valuation.
Instead, what dismays us is the new class action legal liabilities this board has now exposed Reading International to by failing to timely and properly disclose the renewal of the Patton Vision offer and its full terms. According to Bloomberg, the offer letter is dated JANUARY 17, 2019. As of this evening January 31, 2019, there has been no press release nor any 8-K filing disclosing this very MATERIAL event. All of the Reading shareholders who have sold shares during the on-going time window you fail to fully disclose this offer are accruing larger and larger legal claims against Reading.
Rest assured, your failure to heed this letter will create additional legal claims against each and every one of you for breach of the many fiduciary duties you owe to ALL SHAREHOLDERS, not just the Cotters.
About Lawndale Capital Management, LLC
Lawndale Capital Management, LLC, is a San Francisco Bay Area-based Investment Advisor that manages activist/relational hedge funds, which have created value for more than 25 years in small- and micro-cap companies. Lawndale’s multiple approaches to active shareownership support a repeatable and value-oriented investment process deployed across the capital structure in contrarian, special situation and event-driven investments. Lawndale deploys a unique combination of legal, equity and credit skills with boardroom and corporate governance expertise to engage the management, board of directors, and shareholders of its portfolio companies in a productive relational dialogue.