Digest Stock Change Won't Affect Reiman Purchase
The company's stock is currently split into Class B voting stock and Class A nonvoting stock. The majority of voting shares are controlled by the DeWitt Wallace Reader's Digest Fund and the Lila Wallace Reader's Digest Fund.
The Wallace funds will relinquish control of Reader's Digest and receive $100 million in the process. This transaction as well as the Reiman acquisition is being paid for through financing from J.P. Morgan and Goldman Sachs.
After the changes are made, the funds will be reduced from a 50 percent voting majority to 14 percent. Nonvoting shareholders will then have a combined 78 percent of the vote.
"When this is done, the company will have the most typical type of structure, which is that one class of shareholders has all the voting power and one share equals one vote," Reader's Digest spokesman William Adler said. "It means that the company will be run by a board that will be answerable to the entirety of the shareholders."
Though the recapitalization will not affect the Reiman acquisition, future company actions will be subject to a vote by all shareholders.
Reader's Digest Association, Pleasantville, NY, announced March 21 that it would acquire Reiman Publications LLC, Greendale, WI, for $760 million. In March there were two attempts to gain control of the company.
On March 12, The Wall Street Journal reported that Highfields Capital Management tried to gain control of Reader's Digest from Wallace Reader's Digest Funds because it opposed the acquisition. However, the proposal was rejected.
On March 25, Standard & Poor's Corp. downgraded Reader's Digest's debt rating to junk status. A day later, Highfields tried another unsuccessful takeover. In a statement, Highfields called the decision "alarming" because the funds' board never responded to its offers and took a premium from the company instead.
"The agreement ... is clearly designed to entrench the current management, their financially dangerous strategy and the hand-picked board of directors," Highfields said.
The acquisition of Reiman, which is the largest ever for Reader's Digest, is expected to close before June 30.