February 10, 2020
Mr. John C. Pope
Chair, Board of Directors
R.R. Donnelley & Sons Company
35 West Wacker Drive
Chicago, IL 60601
Re: Poison Pill Adopted by R.R. Donnelley & Sons Company (the "Company")
Dear Mr. Pope:
As the current holder of approximately 12.9% of the Company's outstanding common stock and its largest bondholder, Chatham Asset Management ("Chatham") is writing to demand that the Company's board of directors (the "Board") rescind the Rights Agreement (the "Poison Pill") adopted by the Company as of August 28, 2019. The Poison Pill, which appears to have been targeted at Chatham, threatens the fundamental rights of stockholders to engage the Board and management on matters critical to the Company's financial condition and prospects. By attempting to shield the Board and management from stockholder criticism and input, the Poison Pill serves no legitimate corporate purpose and is contrary to the interests of both the Company and its stockholders.
As a substantial investor in the Company, Chatham is interested in engaging constructively with the Board and management to discourage value-destroying corporate policies and encourage action that would actually enhance value for all of the Company's stakeholders. Instead of being prepared to respond to the issues and points raised by Chatham in a constructive manner and fulfilling their responsibility to protect shareholder interests, the Board has adopted the Poison Pill, which was put in place shortly after becoming aware that Chatham had acquired more than 10% of the Company's stock. The Poison Pill is especially punitive to stockholders who hold between 10% and 20% of the outstanding stock and who cease being passive investors (as measured by whether the stockholder is required to file a Schedule 13D rather than a Schedule 13G under Securities and Exchange Commission ("SEC") regulations). Under the Poison Pill's terms, stockholders (like Chatham) who hold between 10% and 20% of the Company's equity and currently file on Schedule 13G risk crippling dilution of their equity interests if they take action that the Company deems sufficiently "activist" to require (in its view) Schedule 13D filings.
The Poison Pill thus poses a significant obstacle to the exercise by investors who have substantial equity holdings in the Company of one of the most fundamental stockholder rights – the right to communicate with the Board and management about issues that go to the heart of the Company's business plan, affect value creation for the entire enterprise and implicate the interests of every stockholder. Chatham wishes to initiate a dialogue with the Company about such matters, in particular in light of the recent abysmal performance of the Company's common stock, whose price has collapsed approximately 34.4% since the beginning of 2020, during a period when the S&P 500 market index increased approximately 3.0%.1
Nevertheless, Chatham is being deterred from engaging with the Board and management because of the risk that the Company will deem its actions to be those of an activist stockholder that satisfy the SEC's requirements for filing a Schedule 13D and thereby trigger the Poison Pill. There is no legitimate corporate purpose served by deterring and punishing stockholder communications in this manner. The Board and management owe fiduciary duties to the Company's owners – the stockholders – and are obligated to engage on matters of legitimate concern to them (and at least hear their concerns). Attempting to insulate the Board and management from having to communicate with, and receive criticism from, the Company's substantial stockholders is not a legitimate corporate purpose.
Moreover, given the timing of the Poison Pill's adoption and the structuring of its provisions to apply almost precisely to Chatham's current ownership position, it is impossible to avoid the conclusion that the Company targeted the Poison Pill at Chatham. That is deeply troubling given Chatham's desire to foster a productive dialogue with the Board and management.
In sum, the Poison Pill interferes with the exercise of legitimate stockholder rights and should be rescinded immediately. While we are willing to meet with the Board to discuss Chatham's concerns about the Poison Pill, Chatham reserves the right to seek whatever remedies are available if its concerns are not resolved.
Chatham Asset Management
Daniel L. Knotts, President and Chief Executive Officer
Terry D. Peterson, Executive Vice President and Chief Financial Officer
Brian D. Feeney, Senior Vice President, Finance