APN News and Media's share price fell by A3.5c, or 11.7 per cent, to A26.5c in early Australian trading after the shock resignation of the chief executive and several board members late yesterday.
The dual-listed publisher and broadcaster, which will report its annual result on Thursday, went into a trading halt last week while the company sorted out its internal ructions and considered a major capital-raising exercise to deal with its debt load.
Last night, Ireland's Independent News & Media, with the support of fund manager Allan Gray, was successful in ousting half the APN board, as well as putting a stop to a planned capital raising by the company.
Chief executive Brett Chenoweth, chairman Peter Hunt and directors Melinda Conrad, John Harvey and John Maasland leave the company today.
Independent director Kevin Luscombe will retire in April, as previously planned, APN said.
Australia-based APN, which publishes the New Zealand Herald, said Independent News & Media and Allan Gray - together representing about 51 per cent of APN's shares - had "unequivocally" indicated that they were opposed to a capital raising.
The debt-laden Independent News & Media, APN's biggest shareholder with 28.95 per cent, is in the throes of selling its South African assets.
Allan Gray, APN's second biggest shareholder with 19.7 per cent, has a name for taking a view that the earnings of businesses can become temporarily depressed and that value can be realised from changes in management or from the sale of assets.
"Independent News clearly do not have the cash to participate in any rights issue, while the large Australian fund manager would seem to have opposed the rights issue on the grounds that it would be unnecessarily dilutive and that assets could be sold," Matt Goodson, portfolio manager at BT Funds Management, said.
Allan Gray has 11.4 per cent of in APN's main rival, Fairfax, and was vocal in making a case for asset sales at Fairfax. Last December, Fairfax completed the sale of its 51 per cent stake in Trade Me, for A$616 million, and used the proceeds to reduce debt.
"The key question is: Does APN really need to raise cash? That really depends on the path of their earnings over the next several years and the rate at which they decline," Goodson said.
Equities research house Morningstar said that before the boardroom exodus, it had built in to its valuation a conservative fund raising of A$100 million to pay down debt to a more manageable A$359m.
"Continued debt repayment remains the priority to resurrect the business," Morningstar said.
Morningstar has changed its APN recommendation to "avoid" from "reduce".