Hedge Fund Making Power Play For Fisher

For the second time in less than three years, Fisher Communications is being pushed toward a sale by the same dissident shareholder. The move by New York-based FrontFour Capital Group, a hedge fund manager, comes after Fisher’s board — also for the second time in less than three years — rejected an unsolicited bid.

While the identity of the first bidder was never disclosed, this time it is known: Huntingdon REIT, a Canadian commercial real estate firm that’s targeting Fisher Plaza, a prime 300,000-square foot office building in downtown Seattle.

And this time, the hostile takeover attempt may have a chance.

Huntingdon is bidding $211 million for Seattle-based Fisher, which owns and operates 13 full-power television stations and seven low-power stations. The group includes two ABC affiliates, including flagship KOMO Seattle (DMA 13); eight CBS affiliates; and three Univision affiliates. Fisher also owns eight radio stations.

Because foreign entities are precluded from owning any more than 24.9% of a U.S. broadcaster, Huntingdon would have to sell or otherwise spin off most of the broadcast assets if it took control of Fisher.

Huntingdon has FrontFour’s backing in a boardroom battle. FrontFour, which owns roughly 2% of Fisher stock, has set up a potential proxy fight by attempting to stack Fisher’s board with its own nominees. If that happens, it could effectively block Fisher’s attempt to prevent the takeover.

Moreover, Fisher’s biggest institutional investor, Mario Gabelli, is set to play what could be a pivotal role in the outcome.

Although it received Huntingdon’s bid in early December, Fisher did not disclose the bid or that its board had rejected it until Jan. 3, the first day of trading this year for U.S. markets. That prompted a rebuke from Gabelli, whose various companies own about a 28% stake in Fisher.

“As we discussed several weeks ago, we are very uncomfortable by the existing board’s decision not to surface the proposal you received in mid-December,” Gabelli wrote to Fisher CEO Colleen Brown in a letter dated Jan. 27.

The letter indicates that FrontFour is attempting to force Fisher’s hand on selling Fisher Plaza by seeking to have its slate of nominees elected to the board. “Since our clients own 25%, we will be an important element in determining who to vote for,” Gabelli’s letter continues.

“The reality is that what Gabelli is doing is the right thing,” said a source in the investment banking sector familiar with the situation. “For a public company that’s been public as long as Fisher has, what they have done is pretty stupid. You just never fail to disclose.”

Predictably, at least one law firm has announced it intends to investigate Fisher’s delay in responding and whether it violated the company’s fiduciary responsibility to its shareholders.

Gabelli goes on to discuss setting up a meeting between Fisher and the would-be buyers and inviting certain shareholders to listen. Such a meeting would allow the different sides to present their cases and perhaps begin discussion of what a transaction would look like.

Broadcasters and financial players will be closely monitoring how events unfold, in large part because the resolution could yield a clear signal on the return of a revitalized M&A market this year as well highlighting cash-flow multiples for such deals.

Some investors have criticized Fisher for lagging peer performance. The company’s cash flow margins have been around 18%-20% where other station group owners have been around 30% or higher. Fisher’s policy of reinvesting cash flow into operations has also prompted criticism.

Huntingdon, a real-estate investment trust headquartered in Richmond, British Columbia, made the bid for Fisher on Dec. 6, 2010. Huntingdon has its eye on Fisher Plaza, which happens to house Fisher’s corporate headquarters as well as ABC affiliate KOMO.

A Fisher spokesperson said that Fisher has now rented about 95% of the Plaza. The building generated $3.7 million in third-quarter 2010 revenue, just under 9% of Fisher’s $42.2 million in total revenue for the period.

Fisher had put the building up for sale in mid-2008 but soon thereafter shelved the idea when the economic downturn took hold. About the same time, Fisher’s board rejected an unsolicited $384 million buyout bid that would have valued the company at $43-$45 a share.

That sparked concern among some of Fisher’s larger shareholders, including Gabelli, who felt the company was not doing enough to improve shareholder value.

Huntingdon, which owns roughly 75 revenue-generating real estate properties in Canada and the U.S., is closely tied to FrontFour.

David Lorber, a Fisher board member named in 2009 as part of a settlement with Gabelli, is a founding partner of FrontFour along with Huntingdon CEO Zachary George.

FrontFour has nominated John Powers, chairman of the New York Tri-State region of the CB Richard Ellis commercial real estate firm; Joseph Troy, EVP and CFO of trucking firm Quality Distribution; Matthew Goldfarb, portfolio manager of private investment firm Fourth Street Holdings; and Stephen Loukas, partner and portfolio manager at FrontFour.

At the time of the Huntingdon’s bid, the $211 million represented about an 18% premium on Fisher’s stock price of $20.30. By the time Fisher disclosed the unsolicited bid, Fisher shares closed at $23.45, representing about a 10% premium on the bid. Fisher shares closed yesterday at $24.60, roughly in line with the offer.

Representatives of Fisher declined to comment for this story. Huntingdon’s Zachary George was unavailable for comment and a representative for FrontFour did not return phone calls requesting comment. Gabelli did not respond to a phone call seeking comment.

However, a source familiar with the situation said Fisher considers Huntingdon’s bid a low-ball offer.

“What’s essentially happening is an attempt to buy by an insider at the expense of other shareholders,” the source said. “FrontFour with its slate of directors is trying to gain control of the company and force a sale at absolutely the wrong time. Broadcast valuations are still low and the real-estate market is still weak.”

A Jan. 4 report from Gabelli analyst Barry Lucas puts a $41 per share value on Fisher’s stock based on a cash flow multiple of eight times and $100 million book value for Fisher Plaza.

Fisher showed book value of $109 million for the Class A building at the end of 2009, according to the report. While real estate in the Pacific Northwest has taken a hit, as it has elsewhere over the past three years, sources familiar with the property estimate it could fetch $135 million to $150 million on the open market. .

“It all comes down to price,” said the investment banker who requested anonymity. “I think Huntingdon wants to split the company in half. They want the real estate. Mario is going to say: what’s the best thing to do: buy ‘em off, keep the whole thing intact or get the most value out of the real estate?”