In other words, this isn’t your normal $8 billion transaction. It involves two of the most prominent media companies in the land, which have taken different paths en route to this once unthinkable mating. Times Mirror, owner of the Los Angeles Times, the Baltimore Sun and Long Island, N.Y.’s Newsday, has been selling or closing properties, using the proceeds to buy back stock and shrinking, a time-honored technique for jacking up your share price. By contrast, Tribune Co., owner of the Chicago Tribune, The Orlando Sentinel and a ton of TV stations, has been plowing cash generated by its old-media properties into new media, including a substantial stake in America Online.
One of the reasons the Times Mirror deal has attracted far more attention than its size would merit is that Mark Willes is one of the most controversial people in the news business–and we newsies love writing about ourselves. Willes, imported from General Mills by the Chandlers in 1995 to get the stock price up, became known as the “Cereal Killer” for closing New York Newsday and firing thousands of other Times Mirror employees. In addition, he violated journalistic convention by breaking down the wall separating newspapers’ business operations from news-gathering operations, as witness the famous Staples Center fiasco. His goal of vastly increasing the L.A. Times’ circulation was unusual, too, because a quasi-monopoly paper usually profits little, if at all, from sudden circulation surges.
Willes is an apostle of “shareholder value”–Wall Street-ese for “getting the stock price up.” And, in fact, Times Mirror stock has more than quintupled–to Friday’s $93.75–from the $18 at which it stood when Willes’s appointment was announced on May 1, 1995. That far outstrips the 185 percent rise in the Standard & Poor’s 500 Index. However, most of Times Mirror’s gain came last week after the sale was announced. Through March 10, the last day before the sale announcement, Times Mirror had risen only 166 percent during the Willes regime, slightly less than the S&P’s 171 percent. Tribune Co. rose only 152 percent during that period–but it was spending money to expand rather than shrink. Which is why it’s the buyer, not the seller.
Before we proceed, disclosures: I worked at the now defunct New York Newsday for six years, and I’ve written frequently–and scathingly–about Times Mirror and the Chandler family’s tax-dodging tactics. And I predicted years ago, to general guffaws, that the Chandlers would sell the company.
To be fair, Times Mirror was messed up when Willes arrived. The stock was falling; cash was tightening; the Chandlers, many of whom live on their dividend income, were impatient. And asset-selling predates Willes. Before his arrival, Times Mirror in effect sold its cable-TV properties and gave the Chandlers newly minted securities to keep their income up even after the common-stock dividend–the one that mere shareholders receive–was cut sharply. But instead of renovating Times Mirror’s properties, which would have been a long-term, progrowth fix, Willes went the easy route. He sold or closed numerous publications and businesses. It was simple and it produced tons of money that Willes could use to buy back Times Mirror stock. This propped up the share price and kept Wall Street and the Chandlers happy. Take risks? Forget it.
The closing of New York Newsday typifies his approach. The paper, which had consumed $100 million making a run at the lucrative New York City market, was close to breaking even, according to its internal books. Willes closed it, and told me he did so because it would never meet his profit criterion of 15 percent of sales. The closure sent Times Mirror stock soaring. But if New York Newsday were still around, it likely would have prospered mightily during New York City’s current boom. And helped Times Mirror show the growth that Wall Street now demands.
Willes’s tenure included two complex deals with the Chandlers that allowed the family to trade about half its Times Mirror stock, tax-free, for more than $1 billion of cash, real estate and other assets. Even though this added debt to the now shrunken company’s balance sheet and foreclosed growth opportunities, Wall Street loved it, because it increased earnings per share. Times Mirror rose to a record 72a in October, shortly after the second deal was announced. But the stock subsequently swooned, as many old-media stocks did. For reasons that aren’t clear, the Chandlers turned on Willes, and talked with Tribune without telling him. Which brings us to Tom Unterman, the tax genius who designed many of Times Mirror’s deals, including the asset swaps, and who went to work for the Chandlers this year after seven years at Times Mirror. He will get a fee in the $5 million to $10 million range for helping with the sale to Tribune. Tribune went directly to the Chandlers because Willes had blown off its earlier approaches.
Now, watch. It turns out that the Chandlers’ two asset swaps with Times Mirror are what made the sale to Tribune possible by precluding what trust types call “excessive concentration” problems. To wit, if a trustee puts too many eggs in one basket, the trust’s beneficiaries can sue him for being imprudent. The swaps had so diversified the Chandler trusts’ assets that family lawyers issued an opinion that the $1.35 billion of Tribune stock the trusts will get in the sale isn’t an excessive concentration.
Various Times Mirror types –off the record, of course– bad-mouth Unterman for helping sell the company he so recently left. Their obvious implication is that while on Times Mirror’s payroll, Unterman set up a sale of the company–and a fat fee for himself–by orchestrating the asset swaps with the Chandlers. Unterman, in an interview, denied it vigorously. “Nothing could be further from the truth,” he said. “There was no thought of selling the company at the time.” Willes, through a spokeswoman, said that he doesn’t think Unterman did the deals to set up the sale.
Willes has let it be known that the L.A. Times has added about 100,000 to its circulation during his regime. But the company won’t provide figures to show if this added circulation is profitable. Much of it seems to come from distributing the Times to readers of a Spanish paper, La Opinion, who get the Times for little or nothing.
Willes, an emotional type, has gotten teary-eyed while talking about Tribune’s snatching the company away just when his strategy was about to bear fruit. But don’t cry for him. His stock and options will bring him about $90 million by my estimate, triple their predeal value. He’ll leave the stage looking silly–but very, very rich.
