STREETWISE: Metromedia under the Lens

Proponents of shareholder activism might want to take a look at Metromedia International Group Inc.

The challenge, however, could be in deciding whether to go long or short on shares of the East Rutherford, N.J., media and communications company.

Since going public in 1995, the company has seen its stock drop by more than 80%, compared to a 166% increase by the Standard & Poor’s 500 stock index over the same period. The stock’s peer group, the Nasdaq Telecomm Index, has gained more than 240% since Metromedia began trading.

The share price hit its 52-week high in March at $10.25 and found a low of $2.70 last month. Toss in the company’s third-quarter loss of $26 million, or 28 cents a share, on revenues of $69.5 million and there doesn’t seem to be reason for much optimism.

But that’s where things start to get interesting. To some investors, the tanking stock price and lack of profits, combined with a classically poor example of corporate governance, make this a stock to buy.

Enter Lens Investment Management LLC, participating in its first act of pure shareholder activism since moving out of the money management business earlier this year.

Richard Bennett, chief activism officer of the Portland, Maine, company, says Metromedia meets the Lens profile of an undervalued company.

“We think this is a classic case of a management that is running a public company like a private company,” he says.

Among the concerns that Lens is voicing is Metromedia’s cozy ownership structure, which includes an insider board of directors and more than 25% of the voting shares linked to the company’s top officers and affiliated businesses.

As shareholders themselves, the Lens activists lay out a long list of gripes, from a lack of analyst coverage, to inadequate investor relations, to the company’s inability to shed non-core business lines.

A big concern is that management could let the stock fall to where it makes more sense to take the company private and sell it in pieces.

In a conference call last week when it announced its earnings, Stuart Subotnick, president and CEO, denied plans to take the company private.

That fear may derive from the fact that in the mid-1980s, Mr. Subotnick and reclusive billionaire John Kluge, another big Metromedia shareholder, participated in a deal that took private Metromedia Group, a domestic version of Metromedia International. Once private, it was sold off in sections.

Lens is not the only shareholder pushing for change. Snyder Capital Management in San Francisco and the New York City teachers’ pension fund also are pushing for greater shareholder influence.

But Lens has recently taken the lead role. In September, Lens introduced itself to Metromedia’s officers and board and outlined its top gripes with the company. Lens has yet to receive a response despite attempts to communicate by phone.

Last week, Lens turned up the volume with a formal “books-and-records” request based on shareholders’ statutory right to information.

“They’ve left us with no recourse but to follow due process,” Mr. Bennett says.