Highfields Capital Management LP has made a new bid to gain a controlling interest in Reader’s Digest Association Inc.
The firm plans to offer one of its Class A shares plus $5 for each share held by the Wallace-Reader’s Digest Funds–a 23% premium, according to Highfields. The Wallace Trust owns 50% of Reader Digest’s stock.
“Such a substantial premium has never before been made available to the Wallace Funds,” Highfields said, in a letter to the trust.
The offer follows news that Reader’s Digest plans to acquire Reiman Publications for $760 million. (DIRECT Newsline, March 21).
Reader’s Digest rejected an earlier offer from Highfields, which included a $3 per share premium.
According to Reuters, Standard & Poors cut its corporate credit rating for Reader’s Digest to BB Plus from BBB-Minus, citing the Reiman deal.
Highfields said today that it plans to “focus on existing businesses that should be grown, run for cash or sold,” and collapse all A and B shares into new “one share/one vote” shares without additional payment.
“To be clear, Highfields is willing to pay the Wallace Funds $31 million for voting control of the Company and then give up that control for the benefit of all shareholders including the Wallace Funds,” the firm said.
Highfields feels “stockholders would be better served through a combination of stock repurchases, managing the U.S. business for cash and possible asset sales,” Reader’s Digest CEO Thomas O. Ryder said in a statement last week.
“Basically, you have to make a decision whether in you’re in for long haul and to grow the business with the right kind of acquisitions, or whether you really want to start to break it apart,” said Claire Gruppo, managing director of Gruppo Levey and Co., which represented Reiman and Madison Dearborn in the purchase deal, in an interview last week.
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