Chatham Asset Management Sends Letter to R.R. Donnelley Board of Directors Regarding Extension of Stockholder Rights Plan

Rhea-AI Summary

Chatham Asset Management, owning 14.9% of R.R. Donnelley & Sons Company (RRD), criticized the Board's decision to extend its stockholder rights plan, viewing it as detrimental to shareholder value. The letter highlighted an 80% decline in RRD's stock since its 2016 spinoff, equating to over $1 billion in lost value. Chatham stressed the need for new directors with corporate governance expertise to enhance shareholder engagement and improve operational efficiency. They urged the Board to reconsider their governance approach and align more closely with shareholder interests.

Positive

• Chatham's significant ownership stake indicates strong investment in RRD, potentially advocating for positive change.
• The proposal for new directors with governance expertise could lead to improved capital allocation and operational efficiency.

Negative

• RRD's stock has dropped 80% since the 2016 spinoff, signaling long-term underperformance.
• The Board's unilateral extension of the poison pill raises concerns about governance and alignment with shareholder interests.

CHATHAM, N.J., Sept. 1, 2021 /PRNewswire/ -- Chatham Asset Management, LLC ("Chatham"), a private investment firm which manages funds that beneficially own approximately 14.9% of the outstanding common stock and which is the largest bondholder of R.R. Donnelley & Sons Company ("RRD" or the "Company") (NYSE: RRD), today sent a letter to RRD's Board of Directors regarding its decision to amend and extend the Company's value-destructive stockholder rights plan.

The full text of the letter follows: 

September 1, 2021

The Board of Directors
R.R. Donnelley & Sons Company
35 West Wacker Drive
Chicago, Illinois 60601
Attention: John C. Pope, Chairman

Dear Members of the Board:

Chatham Asset Management, LLC (together with its affiliates, "we" or "Chatham") is the largest stockholder and bondholder of R.R. Donnelley & Sons Company ("RRD" or the "Company"), beneficially owning approximately 14.9% of the Company's outstanding common stock and 44.5% of the Company's outstanding bonds.  As you are aware, we have written numerous letters, both publicly and privately, seeking to address the Company's poor valuation and consistent underperformance. Today, we write in response to RRD's Board of Directors' (the "Board") highly problematic decision to renew its poison pill, without shareholder input until next year's annual meeting, which has traditionally been held in May.  We believe this action, despite considerable shareholder opposition to the poison pill at the 2021 annual meeting of shareholders, raises significant corporate governance issues and demonstrates the urgent need to add new directors to the Board who have been recommended by shareholders and have strong capital allocation and corporate governance expertise.

That fact that the Board continues to defend and extend the poison pill despite clear opposition from its stockholders, and over and above the objections of shareholder advisory firms, such as Institutional Shareholder Services ("ISS"), who have clearly opposed retention of the poison pill, only serves to demonstrate that the Board's interests are not aligned with those of its stockholders and fresh perspectives are sorely needed in the boardroom. The Board adopted the poison pill unilaterally and has twice renewed it without submitting the poison pill to a stockholder vote. As ISS noted, "the fact that the company's share price had remained low for more than a year does not justify extending the pill without giving stockholders a chance to vote." What was true of the extension in 2020, is still true in the case of the 2021 extension. This anti-democratic action is entirely contrary to the principle of stewardship of stockholder value, and yet is entirely in keeping with the apparent philosophy of the Board, which is one that prioritizes its own entrenchment over stockholder input.

Since RRD completed the spinoff of LSC Communications and Donnelley Financial in 2016, RRD's stock has declined 80%,¹ representing the destruction of over $1 billion in stockholder value. The Board had informed us that it would review the poison pill after our last correspondence, dated July 28, 2021. Since that time, RRD's share price has declined 18%² and the poison pill has instead been extended another year.

As RRD's largest equity and debt holder, our interests are aligned and our primary goal is the maximization of stockholder value. Accordingly, we believe that the Board needs new directors with strong corporate governance and capital allocation expertise to improve the Company's operating cost structure and explore better ways to allocate the Company's capital, including possibly selling non-core assets and using the proceeds to reduce debt or undertake share repurchases.  We believe a refreshed Board with the right expertise and alignment can lead to margin and free cash flow improvement, higher EBITDA and an improved share price.

We hope the Board will meaningfully engage with us to address the Company's poor corporate governance, Board enhancements and maximizing value for all stakeholders.

Sincerely,

/s/

Anthony R. Melchiorre
Managing Member

Use of Forward-Looking Statements
Certain statements contained in this press release may be deemed to be "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words "anticipate," "believe," "expect," "potential," "opportunity," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained herein that are not historical facts are based on current expectations, speak only as of the date of this press release and involve risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such projected results and statements. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Chatham. Although Chatham believes that the assumptions underlying the projected results or forward-looking statements are reasonable as of the date of this press release, any of the assumptions could be inaccurate and therefore, there can be no assurance that the projected results or forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the projected results and forward-looking statements included herein, the inclusion of such information should not be regarded as a representation as to future results or that the objectives and strategic initiatives expressed or implied by such projected results and forward-looking statements will be achieved. Chatham will not undertake and specifically declines any obligation to disclose the results of any revisions that may be made to any projected results or forward-looking statements herein to reflect events or circumstances after the date of such projected results or statements or to reflect the occurrence of anticipated or unanticipated events.

¹ RRD shares closed at $23.81 on October 3, 2016, and closed at $4.81 on August 27, 2021, per Bloomberg historical price data.
² RRD shares closed at $5.90 on July 27, 2021, and closed at $4.81 on August 27, 2021, per Bloomberg historical price data.  

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SOURCE Chatham Asset Management, LLC

FAQ

What concerns did Chatham Asset Management raise about RRD's Board?

Chatham criticized the Board for extending the stockholder rights plan despite shareholder opposition, indicating misalignment with stockholder interests.

How much of RRD's stock does Chatham Asset Management own?

Chatham Asset Management owns approximately 14.9% of RRD's outstanding common stock.

What has been the impact of RRD's stock performance since 2016?

Since completing its spinoff in 2016, RRD's stock has declined by 80%, resulting in over $1 billion in shareholder value loss.

What changes does Chatham Asset Management propose for RRD's Board?

Chatham recommends adding new directors with strong capital allocation and governance expertise to enhance shareholder value.

Why did Chatham disagree with the extension of the poison pill?

Chatham believes the extension, made without shareholder input, contradicts principles of good corporate governance and shareholder rights.