Edenbrook Capital Sends Letter to Hemisphere Media Group Board
MOUNT KISCO, N.Y.
Sept. 12, 2022
/PRNewswire/ — Edenbrook Capital, LLC (together with its affiliates, “Edenbrook”), one of the largest public shareholders of Hemisphere Media Group, Inc. (NASDAQ: HMTV) (“Hemisphere” or “the Company”), with ownership of nearly 15% of the publicly traded A shares, today announced that it has delivered the following letter to the Hemisphere Board of Directors.
September 12, 2022
Chairman of the Board
Hemisphere Media Group, Inc.
c/o InterMedia Advisors, LLC
228 Park Avenue South,
, NY 10003-1502
Last Thursday was a sad day for shareholder democracy. After market close on
September 8, 2022
, Hemisphere Media Group, Inc. (“the Company” or “Hemisphere”), for which you serve as Chairman, issued a press release with, what we believe to be, the misleading title “Hemisphere Media Group Stockholders Approve Acquisition by Gato Investments LP, a Portfolio Investment of Searchlight Capital Partners, L.P.” Further, the body of that press release claims that “Hemisphere Media Group, Inc.… today announced that its stockholders approved the acquisition of the Company by a subsidiary of Gato Investments LP (“Gato”), a portfolio investment of Searchlight Capital Partners, L.P. (“Searchlight”).”
Why is this misleading? Because the majority of the stockholders of the Company’s publicly traded Class A shares voted against the transaction for the Company to be taken private by insiders at a price that we believe (as we evidence in our prior letters,
) significantly undervalues the Company (the “Insider Takeover”). As shown in the Form 8-K filed by the Company that same afternoon, 11,884,980 shares were voted against the merger. These ‘No’ votes were presumably (and logically) all Class A stockholders because the privately held, super-voting Class B shares are all held by insiders who presumably supported the deal (and because that’s how the math works out when you back out the B share count). Per the same document, there were 20,827,861 Class A shares outstanding as of the
August 5, 2022
record date. So over 57% of the public Class A stockholders voted against the deal. But that number is even higher, because the Class A share count includes over 1,950,000 shares held by officers, directors and insiders of the Company, per Bloomberg data. Which means
if you exclude those insiders who are not disinterested stockholders in the traditional sense, then it seems 63% of public stockholders likely voted against the deal.
Yet you claim that stockholders “approved the acquisition.” The only reason this deal was “approved” is because you have included the Class B stockholders, with their 10 votes per privately held share, in the calculation. While it is true that your calculation excludes the shares held by insider Searchlight, the largest beneficiary of the Insider Takeover, we believe it is also true that
Class B shareholders, not just Searchlight, are interested parties who stand to benefit from the transaction and should have been excluded from the count,
and had you not included the Class B shareholders in your calculation, the
vote tally would have been 63%
the merger. Had the proxy advisory firms publicly opined on this Insider Takeover, which clearly benefits the few at the expense of the many, we strongly believe they would have recommended shareholders vote “No” and that, in turn, the passive public holders in the Company would have voted No as well. Because the fundamental question remains: Why would a stockholder, unless such stockholder was an interested stockholder, support a transaction with a confirmably low valuation (see our previous letters) while simultaneously ignoring or rejecting higher bids for the Company?
We believe that this transaction which you have led, and stand to benefit from disproportionately as an insider, exemplifies terrible corporate governance and an abrogation of fiduciary responsibility by the Board of Directors of the Company. As we’ve laid out in previous letters to you and the Special Committee, you had better paths to go down, you simply chose not to pursue them. You could have sold your streaming business Pantaya separately in a more public auction, rather than giving it to other insiders in a sweetheart deal. You could have kept the cheap, highly cash-generative remainder of the Company as a standalone public company so that all public stockholders could have benefitted from future value creation. Instead you chose the expedient and, in our view, self-serving path: after driving the stock down through a botched secondary and poor communication (see our previous letters), you allowed insiders to benefit from the very chaos they created and effectively swipe the company from the public shareholders who had financed the very businesses the insiders are getting for a song, while blocking other bidders from paying a higher price.
Founder and Managing Partner
About Edenbrook Capital
Edenbrook Capital, based in
Mount Kisco, NY
, takes a private equity approach to public markets, principally through concentrated, long-term investments in small and mid-cap companies.
This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. In addition, the discussions and opinions in this letter and the material contained herein are for general information only, and are not intended to provide investment advice. All statements contained in this letter that are not clearly historical in nature or that necessarily depend on future events are “forward-looking statements,” which are not guarantees of future performance or results, and the words “will,” “anticipate,” “believe,” “expect,” “potential,” “could,” “opportunity,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained in this letter and the material contained herein that are not historical facts are based on current expectations, speak only as of the date of this letter and involve risks that may cause the actual results to be materially different. Certain information included in this material is based on data obtained from sources considered to be reliable. No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and subject to revision without notice. Edenbrook disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate.
SOURCE Edenbrook Capital, LLC
Featured image: Megapixl © Demonike