The Deal from Hell (15 page)
Read The Deal from Hell Online
Authors: James O'Shea
The Chandlers who had brought Willes to the paper were not a small group in Pasadena that “meets at âthe club' on Sundays,” pointed out Harry Chandler, Otis' son and one of the few members of the secretive family who talks publicly about his relatives. The extended family represents some 170 descendants, many of whom live outside Southern California. Most are not named Chandler; only eight of them sat on the board that appointed Willes; only seven (including Otis' son) worked for the
Los Angeles Times
; they are a fractured assembly. Yet
they controlled Times Mirror through the family's considerable stock holdings and treated the company as their own. The family had hired Willes to be the CEO of Times Mirror, not the publisher of the
Times.
His decision to appoint himself publisher angered the family, particularly Otis. As CEO and publisher, Willes was his own boss, and there were no checks on the one man in charge of the day-to-day operations of the newspaper.
Los Angeles Times
; they are a fractured assembly. Yet
they controlled Times Mirror through the family's considerable stock holdings and treated the company as their own. The family had hired Willes to be the CEO of Times Mirror, not the publisher of the
Times.
His decision to appoint himself publisher angered the family, particularly Otis. As CEO and publisher, Willes was his own boss, and there were no checks on the one man in charge of the day-to-day operations of the newspaper.
For editors like Wolinsky, Willes was a mixed blessing: “On the down side, Mark saw no reason that editorial should be treated any different than anyone else. I would argue that maintaining a wall between editorial and the business side was a matter of credibility. But he didn't accept that. In his experience, every department in a company should be going in the same direction. But he also saved the Washington edition with a flourish.”
Few believed that the
Times
could achieve Willes' goal of increasing circulation by 50 percent to 100 percent. But circulation
did
increase under Willes, and he rewarded editors who went along with his ideas with the most important currency in the newsroom: people. “He had all of these ideas,” Wolinsky recalled. “Some were great. Some of them worked. The zoned sections worked. He created a section for small businesses. He gave people stock options. He would sit down with editors and at the end of a meeting give them five or six more people. This was probably not sustainable. I suspect it would have eventually fallen apart. But for a while we had this great feeling that somebody really believed in us.”
Times
could achieve Willes' goal of increasing circulation by 50 percent to 100 percent. But circulation
did
increase under Willes, and he rewarded editors who went along with his ideas with the most important currency in the newsroom: people. “He had all of these ideas,” Wolinsky recalled. “Some were great. Some of them worked. The zoned sections worked. He created a section for small businesses. He gave people stock options. He would sit down with editors and at the end of a meeting give them five or six more people. This was probably not sustainable. I suspect it would have eventually fallen apart. But for a while we had this great feeling that somebody really believed in us.”
Willes launched the first brand advertising campaign in six years, increased weekend cultural coverage, published an eight-page bilingual section, purchased some smaller neighborhood papers in the market, created a “Reading by 9” program for kids, embarked on circulation-boosting campaigns with local non-English language papers like the
Korea Times
, did a bundling deal with the Spanish paper
La Opinión
, and shoved new sections in the paper covering subjects like health, transportation, and Southern California living. Under Willes, the
Times
recorded seven consecutive increases in circulation, although
many gains involved adding gimmicks rather than readers. (The
Times
circulation jumped 17,000 thanks to its alliance with the
Korea Times
and about 90,000 when it was merely bundled with
La Opinión.
) Total gains fell far short of Willes' ambitious goals, but he increased total circulation by 150,000.
Korea Times
, did a bundling deal with the Spanish paper
La Opinión
, and shoved new sections in the paper covering subjects like health, transportation, and Southern California living. Under Willes, the
Times
recorded seven consecutive increases in circulation, although
many gains involved adding gimmicks rather than readers. (The
Times
circulation jumped 17,000 thanks to its alliance with the
Korea Times
and about 90,000 when it was merely bundled with
La Opinión.
) Total gains fell far short of Willes' ambitious goals, but he increased total circulation by 150,000.
The newsroom watched Willes cautiously. Meanwhile, his relationship to the family that hired him deteriorated rapidly, largely due to the turmoil he created on the business side of the paper. “He didn't like the Chandlers,” Wolinsky explained. “He couldn't understand why everybody thought Otis was such a god. . . . I think he was jealous of Otis.” It's possible Willes might have thought the Chandler clan incredibly ungrateful.
In the first two and a half years of his tenure, Willes dramatically improved Times Mirror's financial performance. Between 1995 and 1997, the company paid out $2.1 billion in dividends and stock repurchases, compared to $417 million in the three years before he took over. He handed over all of the company's free cash flow to investors and the Chandlers, plus the proceeds of asset sales he engineered with a helping hand from Tom Unterman, the Chandler family financial sherpa. He sold off Harry N. Abrams, the nation's largest art and illustrated book publisher; the
National Journal
, a respected public affairs magazine; health science publisher Mosby, Inc.; and legal publisher Matthew Bender in a $2 billion plus deal that would later stick Tribune with capital gains taxes the Chandlers should have paid. Efrem (Skip) Zimbalist III, a former Times Mirror chief financial officer under Willes, explained:
National Journal
, a respected public affairs magazine; health science publisher Mosby, Inc.; and legal publisher Matthew Bender in a $2 billion plus deal that would later stick Tribune with capital gains taxes the Chandlers should have paid. Efrem (Skip) Zimbalist III, a former Times Mirror chief financial officer under Willes, explained:
Mark was very direct. He was a visionary. He felt viscerally and emotionally very strongly about the newspaper industry. He liked our other businesses but loved newspapers. He really wanted the
Los Angeles Times
to succeed. But we operated in a complex market and he was struggling for ways to make it work. He put his heart into it and sold off certain parts of the company that he didn't think were
core . . . to raise cash to funnel to the Chandlers. Prior to Mark, we had a great mix of revenue with some assets that were not cyclical like the newspaper business. When the newspaper business was poor, the results were balanced by [non-core assets that] provided revenue. But Wall Street didn't like that. They wanted things to be real clear; they wanted clarity with nothing to confuse them. Mark started getting rid of [non-core assets] and that hurt our balance.
Los Angeles Times
to succeed. But we operated in a complex market and he was struggling for ways to make it work. He put his heart into it and sold off certain parts of the company that he didn't think were
core . . . to raise cash to funnel to the Chandlers. Prior to Mark, we had a great mix of revenue with some assets that were not cyclical like the newspaper business. When the newspaper business was poor, the results were balanced by [non-core assets that] provided revenue. But Wall Street didn't like that. They wanted things to be real clear; they wanted clarity with nothing to confuse them. Mark started getting rid of [non-core assets] and that hurt our balance.
In Willes' tenure, Times Mirror, thanks to the genius of financial wizard Unterman, who had a legendary reputation for hatching tax avoidance schemes, reorganized its capital structure twice, rewarding the Chandlers with huge financial windfalls. The first of Unterman's efforts revived the dividends the Chandlers had sought, but failed to get in the 1994 sale of the cable business. In Unterman's second reorganization move, two trusts that he'd created entered into a complex deal with Times Mirror. The alliance generated regular cash disbursements plus tax-advantaged depreciation deductions to the Chandlers. In effect, the deal between the company and the trusts allowed the Chandlers to diversify their Times Mirror holdings without actually
selling
the stock. In one fell swoop, they circumvented the provisions of the trust saying they couldn't sell the stock, maintained control of Times Mirror, avoided any capital gains taxes, and got the dividends they so coveted.
selling
the stock. In one fell swoop, they circumvented the provisions of the trust saying they couldn't sell the stock, maintained control of Times Mirror, avoided any capital gains taxes, and got the dividends they so coveted.
Wolinsky watched the tension between Willes and the Chandler family bubble over when Otis retired from the Times Mirror board in March 1998: “They were going to have a going-away ceremony for Otis, and I went up there. I was kind of expecting him to make an inspiring speech about journalism.” Instead, at the last minute, Willes combined Otis' final board meeting with a farewell party. “It was in the Chandler Auditorium,” recalled Harry Chandler, referring to a large room on the sixth floor of Times Mirror, “and it was really awkward.”
“Mark treated Otis like he was just another director retiring,” Wolinsky remembered. Instead of a tribute to his fifty-five years of service to the company and newspaper, Wolinsky said, Otis was thrown a few dismissive remarks about how he liked to hunt, lift weights, and surf:
Afterwards I went downstairs and I saw a couple of copy kids wheeling a cart down the hall with a bust of Otis that had been removed from the Globe Lobby. I stopped them and said, âHey, what are you doing? Where are you going with that?' And they said they had been told to take it down and put it in a closet. I asked them who told them to do that and they said Mark.
In his housecleaning effort, Willes was eager to wipe the slate cleanâif not to erase Otis Chandler's legacyâto diminish his lingering presence, although he didn't recall removing Otis' bust.
Willes later acknowledged that his treatment of Otis was a mistake, particularly after Chandler left the board and grew more distant from the company: “In hindsight, because I'm not a politician and I don't know how to play politics, I don't even think that way and that would prove to be a mistake. I should have stayed closer to Otis because he became very critical. I honestly think to this day that, had I taken more time to fill him in, keep him informed, and get his reaction, we would have done better.”
Despite Willes' best efforts, Times Mirror results started to lose their sizzle. By 1999, income from the company's operations totaled $248 million, up only $2 million from the year before. The massive increases in circulation failed to materialize.
Willes removed people with newspaper experience from the corporate suites and turned to executives from outside the industry, such as Steven Lee, an executive from PepsiCo, a consumer products company. He put Lee in charge of overseeing circulation and marketing the newspaper, a product he had never sold. When
Willes bowed to pressure to step down as publisher, he infuriated the Chandlers by tapping his number two, Kathryn Downing, a fellow Mormon and Stanford law graduate who had a long career in legal publishing but no experience in newspapers. He didn't even discuss his desire to promote Downing with the Chandlers, who expected to have a voice in naming a publisher of the family's flagship newspaper.
Willes bowed to pressure to step down as publisher, he infuriated the Chandlers by tapping his number two, Kathryn Downing, a fellow Mormon and Stanford law graduate who had a long career in legal publishing but no experience in newspapers. He didn't even discuss his desire to promote Downing with the Chandlers, who expected to have a voice in naming a publisher of the family's flagship newspaper.
Willes' decision to batter the wall separating the editorial department from the business side was, not surprisingly, met with deep skepticism. He appointed mini-publishers to work directly with editors, blending the marketing of the paper with its news coverage. To him, the alliance made perfect sense. Ad salesmen could tip off editors about good stories, and reporters could alert salesmen to potential customers. People in the newsroom protested, arguing that the wall that had existed precisely because such nefarious alliances had damaged the industry's credibility in the past. But Willes ignored such cries and awarded editors who played ball.
“When I got there, I didn't completely appreciate what the term âwall' meant to journalists,” Willes said. He merely wanted journalists to think more about providing great reporting on subjects in which readers had an interest. “That is literally all I wanted to say. But I said it in the wrong way. I wanted to break down the wall but keep the line there. I never had any interest in having business influence the journalism.”
Surprisingly, for someone interested in making a buck, Willes was not as interested in exploring new media as he was in building up the paper. Otis' son, Harry Chandler, had come to the company a few years before Willes to craft an Internet policy. He wanted Times Mirror to invest in a fledgling company named Yahoo! (Meanwhile, in Chicago, Brumback had made a small investment in an online start-up company called Quantum Computer Services, that would later be renamed America Online. The deal would pay off big.) But Willes didn't embrace the new media with the same zeal as other Internet advocates in the company, such as Unterman, at that time, his CFO. He slashed
Harry Chandler's new media division, angering and dispiriting one of the few people in the company with an eye on the future. Harry recalled:
Harry Chandler's new media division, angering and dispiriting one of the few people in the company with an eye on the future. Harry recalled:
He [Willes] was a Luddite. . . . I've never told anybody this before. But there were three Chandlers still at the company thenâme, Fred Williamson, and Susan Babcock. I was in new media and they worked in jobs on the business side. We were all pretty dismayed at what was happening at the
Los Angeles Times
and Times Mirror. About 30 or 40 percent of the business-side middle or upper management had left. So I made an appointment at Chandis Securities [the Chandler family holding company]. We met in a conference room in Pasadena above the accountants' office on Colorado Avenue and Orange Grove. We told them that we didn't know if they were aware of all the good people that were leaving, and we named many of them. We told them that we wanted to bring the situation to their attention. They listened and said thank you. Frankly I don't know if we had any impact. The only communication you ever get from the family is business. There are no family calls. That never happened. People on the board run everything. They are very secretive.
Los Angeles Times
and Times Mirror. About 30 or 40 percent of the business-side middle or upper management had left. So I made an appointment at Chandis Securities [the Chandler family holding company]. We met in a conference room in Pasadena above the accountants' office on Colorado Avenue and Orange Grove. We told them that we didn't know if they were aware of all the good people that were leaving, and we named many of them. We told them that we wanted to bring the situation to their attention. They listened and said thank you. Frankly I don't know if we had any impact. The only communication you ever get from the family is business. There are no family calls. That never happened. People on the board run everything. They are very secretive.
Wall Street meanwhile took a look at the predicament facing the Chandlers of the world and saw an opportunity to make a buck. Investment banks like Goldman Sachs and Merrill Lynch had used their elevated status as strategic advisers to the corporate elite to unleash a wave of consolidation. Soon deals like AOL's marriage to Times Warner Corporation would command headlines. In Wall Street's view, executives like Willes had a simple choice: to “buy or be bought.” But the man who sanctioned sniff tests to ensure a better-smelling newspaper wasn't easily convinced.
From time to time, Willes had initiated strategic planning exercises to determine if Times Mirror would be better off merging with another media company or remaining independent. They were mock exercises, not actual proposals, and he didn't see any advantage to proposing a marriage of Times Mirror and Knight Ridder, or Tribune Company, or any other media company. “I felt we could take care of our shareholders just fine as an independent company,” Willes recalled. Then he got a phone call from a fellow CEO from Chicago who wanted to get together for a chat at an upcoming Newspaper Association of America meeting in San Diego. “I didn't know John Madigan well, and thought it would be fun to get together, to get better acquainted,” Willes recalled. “I thought it would simply be a conversation. Very naïvely, I thought that's all it would be, just a casual conversation. One of the things I have never been is politically astute.”
7
His Seat on the Dais
T
he white tour bus carrying John Madigan weaved through the streets of Havana. Once again, he and an entourage of Tribune Company executives had come to Cuba with the hope of interviewing Fidel Castro, and once again, Castro had stiffed them. Eric Ober, president of CBS News, had recently shown up in Havana with a group of network executives for a long, late-night session with Castro. So had many other lesser corporate luminaries. But for the second time in six years, the dictator gave the cold shoulder to the CEO of the Tribune Company, head of a widely admired Fortune 500 corporation and a group of executives who ran newspapers covering the world's largest diaspora of Cubans. As his bus passed bicycles and aging cars plying the frenetic streets of Havana, Madigan muttered to a colleague disconsolately, “We just aren't big enough.”
he white tour bus carrying John Madigan weaved through the streets of Havana. Once again, he and an entourage of Tribune Company executives had come to Cuba with the hope of interviewing Fidel Castro, and once again, Castro had stiffed them. Eric Ober, president of CBS News, had recently shown up in Havana with a group of network executives for a long, late-night session with Castro. So had many other lesser corporate luminaries. But for the second time in six years, the dictator gave the cold shoulder to the CEO of the Tribune Company, head of a widely admired Fortune 500 corporation and a group of executives who ran newspapers covering the world's largest diaspora of Cubans. As his bus passed bicycles and aging cars plying the frenetic streets of Havana, Madigan muttered to a colleague disconsolately, “We just aren't big enough.”
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