CHATHAM, N.J. (News release) -- 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), 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.
Anthony R. Melchiorre