The US-headquartered marketing solutions and business services group is under pressure from activist investor NuOrion Investors, which has called on the firm to increase its dividend.
In a filing, RRD stated: “The Rights may cause substantial dilution to any person or group that attempts to acquire the company without the approval of the board. As a result, the overall effect of the Rights may be to render more difficult or discourage a merger, tender offer or other business combination involving the company that is not supported by the board.”
Rights Plans are also known as “poison pills”.
Explaining the move, RR Donnelley chairman John Pope stated: “The board believes that given current circumstances, it is in the best interests of stockholders that no one person or group acquire undue influence or control through purchases of RRD stock.”
RRD shares have been on a downward trend since February, but have increased sharply over the past week, rising from $2.12 (£1.73) on Monday to $2.50 on Friday. (52-week high: $6.76 low: $1.68).
NuOrion described the adoption of the poison pill as “an outrageous act by the directors”. Managing member Guy Phillips has written to Pope demanding that the board of directors “take urgent action to unlock value”.
Citing factors such as an expected repatriation of $200m-$250m from foreign sources, and a likely $100m to come from the sale of its Chinese printing facility, Phillips stated: “While we fully applaud management’s progress, we note that shareholders are, at present, ONLY receiving $8m in annual dividends. We are proposing an increase in the annual dividend to $60 million, the maximum that is currently permitted under the asset backed credit facility without an amendment.
“Management needs to turn Donnelley into a free cash flow machine that prioritises returning capital to shareholders, a strategy that is typically associated with successful private equity investors. The board’s decision in August 2018 to reduce the dividend from $0.56 per annum to $0.12 per annum (a 79% decline) was misguided and directly resulted in a significant decline in the value of Donnelley.
"We believe that every company needs to give shareholders a clear reason to own its shares. In the case of Donnelley, the reason to own the shares should be to meaningfully participate in the cash generation of the company, particularly since “growth” will be difficult to attain,” Phillips said.
RRD had sales of $6.8bn last year. Its UK business posted sales of £194.3m and made an operating profit of £4.5m prior to exceptionals and goodwill writedowns. After taking those into account, including £2.4m in redundancy costs and a £3.6m goodwill writedown, the UK operating loss was just under £1.7m.
The former RR Donnelley & Sons printing, financial, and marketing services business was split into three separate companies in 2016.
