Judge Grants Injunction to Stop Newspaper Sale
PEORIA, Ill. (AP) _ A federal judge agreed Thursday to stop the sale of The Register-Mail in Galesburg to Thomson Newspapers Inc., saying two of the newspapers’s trustees ″were blind to their duties″ in agreeing to the deal.
″I think the conduct of the trustees constitutes self-dealing, that is looking out for their own interests,″ U.S. District Judge Michael Mihm said in granting an injunction sought by John T. Pritchard, former publisher of The Register-Mail, which is owned by his family.
Mihm scheduled a hearing Friday to determine how the trustees should proceed in selling the newspaper, which has a circulation of about 20,000.
Pritchard, his brother, Lester T. Pritchard, and their cousin, Sally Day, are the three trustees who control 54 percent of the newspaper’s stock.
Mihm said he granted the injunction because Lester Pritchard and Ms. Day stood to benefit personally from selling the stock to the exclusion of the other trustee, John Pritchard.
In his lawsuit, Pritchard alleged that his brother and his cousin breached their fiduciary responsibilities as trustees by accepting the Thomson offer without adequately considering other offers.
Mihm agreed with John Pritchard’s allegations that his brother and cousin took the Thomson offer because of personal benefits.
Under the Thomson offer, they would receive additional payments of $1.5 million for agreeing not to start a competing paper and Ms. Day and her family would get health insurance coverage. Those payments bypass the trust.
The decision reversed Mihm’s initial ruling Wednesday night after 12 hours of testimony and arguments. It blocks Friday’s scheduled closing of the sale to Lincoln Publishing Inc. of West Virginia.
Lincoln is a Thomson affiliate created to buy The Register-Mail and two weekly newspapers, according to its attorney, Dan Webb.
The judge, however, rejected arguments by Pritchard’s attorney, Harold C. Hirshman, that Securities and Exchange Commission rules were violated in Thomson’s tender offer of $14.7 million for the newspaper.
Mihm ruled the Thomson offer was a negotiated sale, not a tender offer, so the cited SEC rulings did not apply.
There are several other offers for the newspaper and its two weeklies that Lester Pritchard and Ms. Day have failed to investigate thoroughly, the complaint alleged.
The Peoria Journal Star has made two offers directly to the shareholders - one for $15 million that will create an employee stock ownership plan for The Register-Mail, and another for $16 million for a direct purchase. There are also two other offers for $15.5 million and $18.25 million.
More than 91 percent of the shares in The Register-Mail have been tendered to Toronto-based Thomson Newspapers, said Richard Franklin, the attorney representing the majority of shareholders.