Gate City Capital Management may have officially withdrawn its board nominees ahead of Saga Communications’ annual shareholder meeting per the broadcaster’s wishes, but it has not held back a sharply worded critique of the company’s ongoing digital expansion.
In a letter addressed to Saga Board Chair Warren Lada and filed with the SEC, the investment firm accused the company of “value destruction” tied to its digital transformation efforts and called into question its governance, spending, and shareholder alignment.
“The continued pursuit of our Nominees would not be in the best interest of Gate City or the Company’s shareholders at this time,” the firm wrote, explaining the decision to step back from its boardroom challenge. However, the letter made clear that Gate City’s underlying concerns remain unaddressed.
Gate City’s central objection lies in Saga’s aggressive pursuit of digital expansion. The firm claimed that “Saga was determined to pursue its Digital Transformation regardless of the negative impact the transformation could have on Saga’s profitability, cash flow, and share price.” Gate City said it had spent nearly nine months in dialogue with Saga leadership, offering alternative strategies such as partnering with a digitally experienced company to mitigate risk – recommendations it said were “dismissed.”
The firm pointed to Saga’s 2024 financials as evidence the strategy is failing. “Our concerns regarding the financial merits of the Digital Transformation strategy have thus far proven accurate. In 2024, the Company’s station operating income fell 23.1% year-over-year to $21.1 million, the Company’s operating income fell 79% year-over-year to $2.4 million, and the Company’s operating profit margin fell to 2.1% in 2024 from 10.2% in 2023, a decline of over 800 bps,” Gate City stated.
Further frustration emerged over a March 18 disclosure in which Saga said it would not be able to file its 10-K annual report on time. Gate City described the delay as a sign of “the potential challenges faced by the Company in executing the Digital Transformation.”
Corporate spending was also a point of contention. “In 2022, Saga’s Board approved a large increase in compensation for the Board of Directors resulting in over $500,000 of increased Board compensation in 2023 compared with 2021,” Gate City wrote. The firm also objected to executive bonuses and perks, including “automobile reimbursements, housing reimbursements, country club dues, and the personal use of the Company’s private aircraft lease.”
The firm demanded the immediate sale of what it termed the “Saga House” – a residential property in Sarasota owned by Saga subsidiary Water Dragon LLC. “Gate City considers it to be a failure in corporate governance for a Michigan-based media company to own a luxury residence over 1,000 miles from the Company’s headquarters and steps from the Florida beaches,” the letter said. “It is particularly troubling that Saga’s shareholders are paying for the maintenance, insurance, and property taxes incurred at the Saga House.”
Despite the criticism, Gate City did acknowledge Saga’s strong cash position—$27.8 million in cash and short-term investments—but warned it “only serves as a safety net should the pursuit of the Digital Transformation continue to pressure the Company’s financial results.”
Gate City also questioned Saga’s approach to board refreshment. “While it is encouraging to hear that Saga is planning to refresh the Board of Directors… we are disappointed to hear that the Company has focused their search only on a single individual with digital expertise.” The firm argued that this narrow scope “only appears to acknowledge the Company lacked the internal expertise necessary to successfully execute the Digital Transformation.”
The letter concluded with a call for Saga to implement proposals Gate City outlined in a January letter, reiterating the firm’s belief that doing so would “create considerable shareholder value.” “Even after withdrawing our nominees for the upcoming election, we hope the information contained in this letter provides the Company with a framework for creating shareholder value immediately and in the coming years,” Gate City wrote.
