The Securities and Exchange Commission asked a federal appeals court this week to overturn part of a recent lower-court ruling -- a move that could make the beleagured Evening News Association of Detroit more vulnerable to a hostile bid.
The ruling challenged by the SEC upheld a strict Michigan antitakeover bill, which had been used to defend the company.
In a related development, a former executive at the Evening News Association has sued the media company, alleging that it improperly fired him for leaking documents to a representative of two television producers who have launched a $453 million takeover attempt.
Television moguls Norman Lear and Jerry Perenchio recently offered $1,000 for each share of stock in ENA, a tightly held company with only about 300 stockholders. Although the management insists it is not for sale, Wall Street sources have speculated that the company will soon go on the block because of heavy losses suffered by the Detroit News, its flagship.
A federal judge dealt the Lear-Perenchio effort a temporary blow last week when he ruled that federal laws governing takeovers did not apply to their campaign because ENA's stock is not registered with the SEC. Instead, he said, a tough Michigan law restricting takeover offers should apply to the situation in order to protect shareholders.
That ruling temporarily derailed the bid because of the voluminous disclosure and other requirements of the Michigan law. The producers have agreed to stop their stock solicitation in return for a promise from the Michigan attorney general not to enforce the takeover law until an appeals court in Cincinnati rules next week on the law's constitutionality.
In a friend-of-the-court brief filed with the court, however, the SEC said the lower-court ruling threatened to curtail the enforcement of federal securities laws. A federal antifraud law vesting the SEC with power to monitor takeover campaigns ought to apply to the Lear and Perenchio takeover bid, the SEC said.
A lawyer for the Evening News, however, said the antifraud provisions raised in the SEC brief are tangential to the case before the appeals court. The real issue is whether the tough Michigan antitakeover law applies to tender offers to shareholders living in Michigan, said William Saxton, a Detroit lawyer representing the company.
The stakes in the court case are substantial. If the appeals court overturns the lower court, the Evening News' vulnerability to a hostile takeover bid would be increased because it would be easier for other bidders to make offers, said John Morton, an analyst with Lynch, Jones and Ryan in Washington. He said, however, that the ultimate fate of the company depends on the solidity of members of the Scripps family, who own most of the stock in the Evening News.
Lear and Perenchio's asking price of $1,000 is too low, he said. A more likely price triggering the sale of some of the relatives' holdings would be $1,500, he added.
In the takeover campaign's other development this week, Peter Kizer, former executive vice president of the company, sued ENA's management and board of directors for breach of contract and for suffering caused by his firing for leaking confidential financial information. He also alleged the company diverted corporate funds from its profitable broadcast division to conceal significant losses at the News between 1981 and 1984.
"When I received a legitimate request for information from a well-qualified prospective buyer, I felt a positive response was in the best interests of the company," Kizer said in a statement. "As a result, the stockholders now have the opportunity for a fair appraisal of their stock."
In response, Saxton said the suit is "without merit whatsoever." He said the lawsuit confirms the valid business necessity of terminating Kizer for untrustworthiness.