-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fgrp8AuLti3I35O4VJ8PsHgXFRE3H60/lmXIYnfY+2Mifj2WZd305kIvioHIGaG7 iSFM9kH2MFdPm+TsS49TPA== 0000927016-02-001415.txt : 20020415 0000927016-02-001415.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001415 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020313 GROUP MEMBERS: HIGHFIELDS GP LLC GROUP MEMBERS: JONATHAN S. JACOBSON GROUP MEMBERS: RICHARD L. GRUBMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: READERS DIGEST ASSOCIATION INC CENTRAL INDEX KEY: 0000858558 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 131726769 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43188 FILM NUMBER: 02574535 BUSINESS ADDRESS: STREET 1: READERS DIGEST ROAD CITY: PLEASANTVILLE STATE: NY ZIP: 10570 BUSINESS PHONE: 9142381000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HIGHFIELDS CAPITAL MANAGEMENT LP CENTRAL INDEX KEY: 0001079563 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 200 CLARENDON STREET 51ST FLOOR CITY: BOSTON STATE: MA ZIP: 02117 BUSINESS PHONE: 6178507500 SC 13D/A 1 dsc13da.txt SCHEDULE 13D/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D/A Under the Securities Exchange Act of 1934 (Amendment No. 1) THE READER'S DIGEST ASSOCIATION, INC. - -------------------------------------------------------------------------------- (Name of issuer) Class B Voting Common Stock, Par Value $0.01 Per Share - -------------------------------------------------------------------------------- (Title of class of securities) 755267200 ------------------------------------------------------- (CUSIP number) Highfields Capital Management LP Attention: Kenneth H. Colburn 200 Clarendon Street 51st Floor Boston, MA 02116 (617) 850-7500 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) March 13, 2002 ------------------------------------------------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [_] . (Continued on the following pages) (Page 1 of 11 Pages) - ---------- *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act. - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 2 of 11 pages - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Highfields Capital Management LP - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER Class B Voting Common Stock 433,000 -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY None OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON Class B Voting Common Stock 433,000 WITH Class A Nonvoting Common Stock 8,394,762 -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON Class B Voting Common Stock 433,000 Class A Nonvoting Common Stock 8,394,762 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) Class B Voting Common Stock 3.5% Class A Nonvoting Common Stock 9.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON PN ================================================================================ - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 3 of 11 pages - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Highfields GP LLC - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER Class B Voting Common Stock 433,000 -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY None OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON Class B Voting Common Stock 433,000 WITH Class A Nonvoting Common Stock 8,394,762 -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON Class B Voting Common Stock 433,000 Class A Nonvoting Common Stock 8,394,762 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) Class B Voting Common Stock 3.5% Class A Nonvoting Common Stock 9.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO ================================================================================ - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 4 of 11 pages - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Jonathon S. Jacobson - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER Class B Voting Common Stock 433,000 -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY None OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON Class B Voting Common Stock 433,000 WITH Class A Nonvoting Common Stock 8,394,762 -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON Class B Voting Common Stock 433,000 Class A Nonvoting Common Stock 8,394,762 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) Class B Voting Common Stock 3.5% Class A Nonvoting Common Stock 9.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN ================================================================================ - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 5 of 11 pages - ------------------- ------------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Richard L. Grubman - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER Class B Voting Common Stock 433,000 -------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY None OWNED BY -------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON Class B Voting Common Stock 433,000 WITH Class A Nonvoting Common Stock 8,394,762 -------------------------------------------------------- 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON Class B Voting Common Stock 433,000 Class A Nonvoting Common Stock 8,394,762 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) Class B Voting Common Stock 3.5% Class A Nonvoting Common Stock 9.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN ================================================================================ - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 6 of 11 pages - ------------------- ------------------ This Amendment No. 1 ("Amendment No. 1") amends and supplements the statement on Schedule 13D, filed on March 12, 2002 (the "Schedule 13D"). Capitalized terms used herein but not defined herein have the meanings ascribed thereto in the Schedule 13D. The filing of Amendment No. 1 is not, and should not be deemed to be construed as, an admission that the Schedule 13D or that any amendment thereto is required to be filed. Item 1. Security and Issuer. ------------------- The securities to which this statement relates are shares of Class B Voting Common Stock, par value $0.01 per share (the "Shares"), of The Reader's Digest Association, Inc., a Delaware corporation (the "Issuer"). The principal executive offices of the Issuer are located at Reader's Digest Road, Pleasantville, New York 10570-7000. In addition, the Reporting Persons (as hereinafter defined) beneficially own an aggregate of 8,394,762 shares of Class A Nonvoting Common Stock, par value $0.01 per share (the "Nonvoting Shares"), of the Issuer, representing approximately 9.6% of the 87,161,089 Nonvoting Shares outstanding as reported in the Issuer's most recent quarterly report on Form 10-Q for the quarter ended December 31, 2001 (the "Publicly Available Information"). Item 4. Purpose of Transaction. ---------------------- The information set forth in Item 4 of the Schedule 13D is hereby amended and restated to read in its entirety as follows: From time to time, each of the Funds has acquired Shares and Nonvoting Shares in the ordinary course of business for investment purposes and has held such shares in such capacity. On February 25, 2002, a representative of Highfields spoke with Ms. M. Christine DeVita, President of the Wallace-Reader's Digest Funds (the "Wallace Funds"), the Issuer's largest holder of Shares. A representative of Highfields and Ms. DeVita discussed the Issuer's prospects and certain actions that the Issuer could take in the near-term to further enhance the long-term value to the shareholders. By letter dated February 27, 2002 (a copy of which is attached hereto as an exhibit to this Schedule 13D), Highfields also expressed to Ms. DeVita, in her capacity as President of the Wallace Funds, its frustration with the apparent unwillingness of the Issuer's management to more aggressively manage the Issuer's capital and portfolio of businesses. In Highfields' February 27 letter to the Wallace Funds, Highfields also expressed its view that in no event should the Issuer make any substantial acquisitions, especially any that might involve the issuance of equity at the currently depressed price of the Issuer's stock. Instead, Highfields believes that management should focus its attention on fixing, growing or selling existing operations before considering any acquisitions, views that Highfields believes are shared by several other significant shareholders. - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 7 of 11 pages - ------------------- ------------------ In connection with its discussions with Ms. DeVita, in the February 27 letter Highfields offered to acquire the Wallace Funds' shares of Class B voting common stock by exchanging one Nonvoting Share currently held by Highfields plus $3.00 for each share of Class B voting common stock currently held by the Wallace Funds. This offer was subject only to: (a) the exchange of all shares of Class B voting common stock held by the Wallace Funds; (b) the preservation of the voting rights of the exchanged shares of Class B voting common stock; (c) no acceleration of Issuer indebtedness as a result of the exchange; and (d) receipt of any required regulatory approvals such as those that may be required under the United States antitrust laws. Alternatively, Highfields also offered to discuss an outright purchase of all of the Wallace Funds' shares of Class B voting common stock at a mutually agreed upon price. Upon completion of this transaction, Highfields would seek to cause the business and financing plan outlined above to be undertaken expeditiously and would seek to cause all shares of Class B voting common stock and Nonvoting Shares to be converted on a one-for-one basis into a single class of stock with equal voting rights, without the payment of any premium, and within a reasonable period of time. As further stated in the February 27 letter, Highfields does not wish to take over the Issuer, enter into transactions with the Issuer or cause the Nonvoting Shares and the shares of Class B voting common stock to be treated differently. Highfields' interest is only in accelerating the turnaround of the Issuer that Highfields and others have been demanding for some time. As stated in the February 27 letter, based on Highfields' discussions with Ms. DeVita, Highfields understood that its proposal would be presented to the full Board of Directors of the Wallace Funds and its financial advisors. On March 6, 2002, Highfields received a letter from Ms. DeVita (a copy of which is attached hereto as an exhibit to this Schedule 13D) stating that the Wallace Funds would not respond to Highfields' proposal within the prescribed deadline. On March 11, 2002, a representative of Highfields phoned Ms. DeVita to inquire into the status of the Wallace Funds' Board of Directors' consideration of Highfields' proposal and was told by Ms. DeVita that based upon a "preliminary look" at the proposal it was "not attractive." Ms. DeVita would not elaborate on the reasons underlying this conclusion. Ms. DeVita stated, however, that the Wallace Fundss Board of Directors would consider the matter at a meeting this week if Highfields so requested. Accordingly, by letter dated March 11, 2002 addressed to each of the members of the Board of Directors of the Wallace Funds (a copy of which is attached hereto as an exhibit to this Schedule 13D), Highfields provided the directors with a copy of Highfields' February 27 letter to Ms. DeVita and expressed its frustration, dissatisfaction and surprise with respect to the manner in which management of the Wallace Funds had responded to Highfields' proposal to acquire the Wallace Funds' Shares. - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 8 of 11 pages - ------------------- ------------------ On March 12, 2002, Highfields received a letter from Mr. George V. Grune, Chairman of the Board of Directors of the Wallace Funds (a copy of which is attached as an exhibit to this Amendment No. 1), stating that the Wallace Funds' Board "has reviewed your correspondence and concluded that your proposal does not serve our objectives." By letter dated March 13, 2002 to the Wallace Funds (a copy of which is attached hereto as an exhibit to this Amendment No. 1), Highfields expressed its disappointment in the Wallace Funds' curt dismissal of Highfields' firm and fully financed proposal to exchange Nonvoting Shares for the Wallace Funds' Shares, especially in light of the Issuer's long-standing poor performance. Highfields stated that its proposal was carefully crafted to pay the Wallace Funds a premium for their voting control of the Issuer and afford the Wallace Funds the full economic upside of a turnaround in the Issuer. Putting itself in the shoes of an independent director charged with maximizing the value of assets held for charitable constituents, Highfields indicated that it failed to comprehend how such a proposal could be dismissed out of hand without its trustees making any counterproposal, engaging in any negotiation, or even indicating what its "objectives" are. On February 20, 2002, representatives of Highfields met with Mr. Thomas O. Ryder, Chairman of the Board and Chief Executive Officer of the Issuer and Mr. Richard E. Clark, Vice President of Investor Relations of the Issuer. At that meeting, Highfields strongly recommended that the Issuer avoid making major acquisitions given the Issuer's current operating problems and low valuation, as well as the execution risk and debt burden that any such acquisition would pose. Rather, Highfields' representatives advocated that the Issuer concentrate on bolstering its existing businesses and pursue alternatives, such as the issuance of bonds and the repurchase of shares, to minimize risk and enhance shareholder value. By letter dated March 13, 2002 (a copy of which is attached as an exhibit to this Amendment No. 1) addressed to Mr. Ryder and copied to the Board of Directors, Highfields indicated that its proposal to exchange Nonvoting Shares for the Wallace Funds' Shares was the culmination of almost two years of disagreement with the Issuer's Board concerning how to manage its portfolio of businesses for the benefit of its shareholders. Highfields reiterated its view that the Issuer's financial structure is too conservative, and that a strategic plan to add some leverage, significantly repurchase shares and manage the declining U.S. business (BHE) for cash is the best way to unlock shareholder value. Highfields also voiced its opposition to any acquisition by the Issuer. - ------------------- ------------------ CUSIP No. 755267200 13D/A Page 9 of 11 pages - ------------------- ------------------ As further stated in this letter to Mr. Ryder, Highfields also articulated its dismay with the Reader's Digest's governance structure in which the Issuer is controlled by a single shareholder with one board seat and less than 10% of the ownership economics. Highfields also voiced its concern about the conflicts of interest inherent in this structure - between the Wallace Funds' fiduciary duty to their constituents and its fiduciary duty to the Issuer and all of the other shareholders. Given these concerns, Highfields requested that the Board consider amending its capital structure so that all shareholders have identical voting and economic interests in their shares. Highfields concluded by noting that it remains convinced that the Issuer has value far in excess of its current valuation, and that it will continue to work tirelessly to explore all available avenues to unlock this value. In addition to the foregoing, Highfields may consider the feasibility and advisability of various alternative courses of action with respect to its investment in the Issuer, and Highfields reserves the right, subject to applicable law, (i) to hold its Shares and its Nonvoting Shares as a passive investor or as an active investor (whether or not as a member of a "group" with other beneficial owners of Shares and Nonvoting Shares or otherwise), (ii) to acquire beneficial ownership of additional Shares and Nonvoting Shares in the open market, in privately negotiated transactions or otherwise, (iii) to dispose of all or part of its holdings of Shares or Nonvoting Shares, (iv) to take other actions which could involve one or more of the types of transactions or have one or more of the results described in Item 4 of this Schedule 13D, or (v) to change its intention with respect to any or all of the matters referred to in this Item 4. Highfields' decisions and actions with respect to such possibilities will depend upon a number of factors, including, but not limited to, the actions of the Issuer and the Wallace Funds, market activity in the Shares and Nonvoting Shares, an evaluation of the Issuer and its prospects, general market and economic conditions, conditions specifically affecting Highfields and other factors which Highfields may deem relevant to its investment decisions. Except as set forth herein, no contract, arrangement, relationship or understanding (either oral or written) exists among the Reporting Persons as to the acquisition, disposition, voting or holding of Shares. Except as set forth herein, no Reporting Person has any present plan or proposal that would result in or relate to any of the transactions required to be described in Item 4 of Schedule 13D. - ------------------- ------------------- CUSIP No. 755267200 13D/A Page 10 of 11 pages - ------------------- ------------------- Item 7. Material to be Filed as Exhibits. -------------------------------- The following documents are filed as exhibits to this Schedule 13D. Exhibit 99.1 Letter from Highfields to Wallace-Reader's Digest Funds dated February 27, 2002 (previously filed). Exhibit 99.2 Letter from Wallace-Reader's Digest Funds to Highfields dated March 6, 2002 (previously filed). Exhibit 99.3 Form of Letter from Highfields to the individual Directors of Wallace-Reader's Digest Funds dated March 11, 2002 (previously filed). Exhibit 99.4 Letter from Wallace-Reader's Digest Funds to Highfields dated March 12, 2002 (filed herewith). Exhibit 99.5 Letter from Highfields to Wallace-Reader's Digest Funds dated March 13, 2002 (filed herewith). Exhibit 99.6 Letter from Highfields to The Reader's Digest Association, Inc. dated March 13, 2002 (filed herewith). - ------------------- ------------------- CUSIP No. 755267200 13D/A Page 11 of 11 pages - ------------------- ------------------- SIGNATURES After reasonable inquiry and to the best of his, her or its knowledge and belief, each of the persons signing below certifies that the information set forth in this statement is true, complete and correct. Date: March 13, 2002 HIGHFIELDS CAPITAL MANAGEMENT LP -------------- By: Highfields GP LLC, its General Partner /s/ Kenneth H. Colburn ----------------------------------------- Signature Kenneth H. Colburn, Authorized Signatory ----------------------------------------- Name/Title HIGHFIELDS GP LLC /s/ Kenneth H. Colburn ----------------------------------------- Signature Kenneth H. Colburn, Authorized Signatory ----------------------------------------- Name/Title JONATHON S. JACOBSON /s/ Kenneth H. Colburn ----------------------------------------- Signature Kenneth H. Colburn, Attorney-in-fact ----------------------------------------- Name/Title RICHARD L. GRUBMAN /s/ Kenneth H. Colburn ----------------------------------------- Signature Kenneth H. Colburn, Attorney-in-fact ----------------------------------------- Name/Title EX-99.4 3 dex994.txt LETTER FROM WALLACE-READERS DIGEST TO HIGHFIELDS Exhibit 99.4 [Wallace-Reader's Digest Funds Letterhead] March 12, 2002 Mr. Richard Grubman Managing Director Highfields Capital Management LP 200 Clarendon Street Boston, Massachusetts 02116 Dear Mr. Grubman: Thank you for your letter of February 27th. The Funds Board of Directors has reviewed your correspondence and concluded that your proposal does not serve our objectives. Sincerely, /s/ George V. Grune George V. Grune Chairman of the Board of Directors EX-99.5 4 dex995.txt LETTER FROM HIGHFIELDS TO READERS DIGEST EXHIBIT 99.5 CONFIDENTIAL March 13, 2002 Mr. George V. Grune Chairman Wallace-Reader's Digest Funds Two Park Avenue, 23rd Floor New York, NY 10016 Dear Mr. Grune, We were very disappointed to receive your curt dismissal of our firm and fully financed proposal to exchange shares. We find it a particularly arrogant reaction after we courteously gave your organization almost two weeks in which to consider this serious proposal and/or engage in discussions with us or to even tell us what your "objectives" are. The indisputable fact is Reader's Digest's current stock price is barely above the price at which it initially went public in February 1990. Reader's Digest's track record in creating shareholder value for the Wallace Funds and their beneficiaries during this twelve-year period of time is nothing short of dismal. For example, during this same period of time, Meredith Corp.'s share price has risen about five-fold. Our proposal was carefully crafted to pay the Wallace Funds a premium for their voting control of the Reader's Digest (a premium that has never been available in the marketplace; witness your sale of voting shares back to the company in 1999 at a discount to the price of the non-voting shares at the time) and afford you the full economic upside of a turnaround in the company, something we would obviously pursue aggressively for the benefit of all shareholders. Putting myself in the shoes of an independent director of your organization charged with maximizing the value of assets held for charitable constituents, I fail to comprehend how such a proposal could be dismissed out of hand, particularly in light of the longstanding poor performance of the Company. Your failure to negotiate or even discuss our proposal only reinforces our belief that your behavior is influenced by the conflict in interest inherent in Reader's Digest's current capital structure. Your actions indicate that you are more concerned with maintaining the status quo at Reader's Digest than you are in exercising your fiduciary duty on behalf of the beneficiaries of the Wallace Funds. We implore you to reconsider your decision and to take actions that benefit the constituents to whom you owe fiduciary duties. We stand ready to discuss our proposal with you and to consider any changes that you believe are necessary to protect the interests of the Wallace Funds. Sincerely, /s/ Richard Grubman - ------------------- Richard Grubman Managing Director EX-99.6 5 dex996.txt FORM OF LETTER FROM HIGHLANDS TO THE INDIVIDUALS Exhibit 99.6 CONFIDENTIAL March 13, 2002 Mr. Thomas O. Ryder Chairman and CEO The Reader's Digest Association Reader's Digest Road Pleasantville, NY 10570-7000 Dear Tom: As I am sure you aware from recent press reports and our 13D filing, we have made a proposal to the Wallace-Reader's Digest Funds (the "Wallace Funds") to swap our A shares plus $3 in cash for their 6.2 million B shares. This offer was a culmination of almost two years of disagreement with the Reader's Digest Board of Directors' unwillingness to manage the Digest for the benefit of the shareholders. For some time, we put forth the view that the Company's financial structure is too conservative. We are strong advocates that a strategic plan which would prudently use the company's borrowing capacity to significantly repurchase shares, manage the declining U.S. business (BHE) for cash, and consider asset sales is the best way to unlock shareholder value. At our dinner (at which Richard Grubman and Rich Clark were also present in New York on February 20), you articulated a strategy of "buying some businesses, fixing some businesses, and selling some businesses." We took great issue with the former in that we strongly believe that any significant acquisition is a mistake, given the current operating problems of the Company and its current low valuation. Given the Company's less than stellar operating record and discount valuation compared to other global media companies, it is hard to conceive how you could possibly be the best buyer of any asset that might be for sale. A major acquisition would entail execution risk that Highfields and several other major shareholders are not willing to assume. Recent press reports suggest that Reader's is close to paying $800 million for a U.S. magazine asset. If true, you would be effectively doubling down on your worst performing business after acknowledging to us that you are encountering major problems getting response rates in the U.S. anywhere close to the historical norm. Such a gamble seems extremely foolish and reinforces our belief that the Company can take whatever actions the management wants with a rubber stamp from its controlling shareholder, the Wallace Funds. In an era where corporate governance is being scrutinized more closely than ever, Reader's Digest continues to press forward with an antiquated governance structure. You are controlled by a single shareholder with one board seat and less than 10% of the ownership economics. Furthermore, The Wallace Funds are rife with conflicts and have been for some time--in our opinion their fiduciary duty to their constituents often conflicts with their duty to the Company and all of the other shareholders. Over any time frame one cares to look at, the Company has significantly underperformed its global media competitors in both financial and stock price performance, and it is high time that the other directors address this. At dinner you opined that the Wallace Funds are nothing more than a financial investor and have no interest in corporate control. While we recognize that you don't speak for them, it is obvious that nothing could be further from the truth. The company has long suffered from having an inept absentee owner, and unfortunately, the record speaks for itself. We implore the Board to both reconsider the path that the Company seems to be going down and make changes to the governance structure that would benefit all of the shareholders in the long run. We represented in our proposal to the Wallace Funds that we would collapse the current structure so that all of the shares vote, notwithstanding the fact that we are willing to pay a $3 per share premium for the existing voting shares. The Board ought to take this action now. It could be argued persuasively that the existing voting control has a negative value -- just look at the record. The stock price today (approximately $23) is barely above the price it went public ($20) twelve years ago. The current chairman of the Wallace Funds was the Chairman and/or CEO of the Company for the bulk of this period. We remain convinced that the Company has value far in excess of its current valuation, and you can rest assured that we will continue to work tirelessly to explore all avenues available to us to unlock this value. Sincerely, /s/ Jonathon S. Jacobson - ------------------------ Jonathon S. Jacobson Managing Director cc: Board of Directors -----END PRIVACY-ENHANCED MESSAGE-----