The Deal from Hell (43 page)

I knew FitzSimons had little affection for journalists like me, and, unquestionably, he had a tough job at a tough time. But I found his conduct over the next few months bizarre. Anyone could see FitzSimons wasn't Zell's choice to lead the company once the deal closed. Pate and Larsen had made it pretty clear that the Zell organization felt new leadership was needed. Yet FitzSimons plowed ahead with his penguin initiatives like a man possessed, and a dual narrative began rippling through Tribune ranks.

Hiller, Smith, FitzSimons, and Bob Gremillion, a FitzSimons minion selected to be the czar of transformative change, started laying the groundwork for a future that resembled the past—steep budget cuts and austerity, that debtor's two-step that would hit newsrooms hard. Frankly I don't think they had a clue about how to grow revenues, other than “think local” and nebulous projections about a better life on the Internet. Over drinks in the Intercontinental Hotel on one of my visits to Chicago, Lipinski and I discussed the fate of our papers. She told me that we were both targets of much hostility during a
large, transformative change meeting because of our opposition to front-page ads.

But Lipinski and I got different messages from Zell, Pate, and Larsen, who continued to emphasize the need for enhanced revenues and parroted the line that only fools would rely solely on budget cuts to meet the challenges ahead. They had discussed selective cuts but also some investment to enhance our ability to generate revenues. At times, it seemed like the right hand wasn't talking to the left, and I began to wonder if the Zell team knew existing publishers were building budgets with fairly steep cuts baked into projected expenses. I could tell that Pate and Larsen had steeped themselves in the company's financial operations. At one point, Pate remarked to me that a mismatch between total ad inches and ad revenues suggested that “a lot of discounting is going on out here.”

What neither of us knew was that both narratives were being driven by the increasingly tense behind-the-scenes skirmishes between the company and its lenders. In August, the lead banks—JPMorgan Chase, Citicorp, Merrill Lynch, and Bank of America—had sent the company a five-page due diligence letter seeking detailed information about Tribune's strategy, markets, and business lines, including the rationale for everything from its assumption about publishing revenues and expenses to adjustment to its projections since April, when the company had made forecasts for phase one of the deal.

The company responded about a month later with a five-year financial model that included some pessimistic projections, those “sky is falling” scenarios that Tribune managers included in the model but didn't endorse. The response triggered more back and forth between the company and the banks regarding the terms of the loans, the feasibility of revenue and cash flow assumptions, and testy questions about the Tribune's ability to impose the deep cuts that would be needed to repay the debt.

At one point, the banks tried to restructure the loans to make them a better deal for themselves, a tactic that would also make them more appealing to investors in the secondary syndication markets. But the
Tribune board rejected the proposal without offering any alternatives. “We are clearly dealing with an organization at all levels unable to come to a decision,” said a frustrated Michael Costa, the Tribune adviser at Merrill Lynch, who questioned whether the bank should deal directly with the board. “We should also seek direct dialogue with the board since management seems incapable of driving a decision.”

Subsequently, the banks issued yet another detailed list of questions framed by the solvency expert their lawyers had hired to analyze the adequacy of the Tribune Company's solvency expert, Valuation Research Corp. (VRC). By having their lawyers hire the expert, the banks draped a cloak of lawyer-client secrecy over their communications, suggesting they anticipated court action. But the tactic backfired. The tenor of the questions made Tribune general counsel Kenney fear the banks were trying to “spook” VRC. Soon a lawyer from another Tribune law firm joined the discussions—one retained by Tribune to litigate in case the banks tried to abandon their commitments.

Tribune Company even disagreed with its own experts. VRC did an analysis of Tribune Company's financial projections for October 2007 and concluded that many should be adjusted downward to reflect the deteriorating market conditions. But Tribune CFO Don Grenesko and Chandler Bigelow, a vice president in the financial department, countered with reports that argued management's more optimistic assumptions were reasonable.

As the competing arguments began filtering down into the ranks, a dual narrative evolved and the stakes for closing the deal grew, creating an almost electric tension in the Tower. Tribune Company finally agreed to some changes in the terms for the phase-two loans, but the banks balked at extending the credit since the loans would translate into immediate red ink, despite the huge fees they stood to make. Tribune managers, who would rake in big bonuses if the deal closed, factored into their projections the kind of budget cuts that made Lipinski and me nervous. Zell and his team continued to argue that Tribune couldn't cut its way to success and needed
additional revenue so he could make the millions he saw in the deal. At one point, the banks sounded each other out and learned that a couple were leaning against funding the loans because they felt they could make the case that the loans would render Tribune Company insolvent.

As I watched from afar, I knew nothing about the behind-the-scenes skirmishes. But my gut told me that this deal offered me salvation and doom in one fell swoop. I owned Tribune stock and, like everyone else, I wanted to see the deal close. Employees of my rank had to own twice their salary in Tribune stock. I had a lot of my life savings tied up in the shares. But I also knew that a debt-laden company would force me to make some hard, personal decisions. I agreed with Zell, Pate, and Larsen; Tribune could not simply cut its way to the future. Over the past five years, I'd trimmed fat out of many newsroom budgets and had lived with tight financial controls imposed by the accountants. I'd become an adept budgetary surgeon. But my patient never got any better.

The Image fashion section we'd created in the
Los Angeles Times
showed that the paper was capable of generating new revenue. Many of the high-class advertisers that snapped up space in Image had never been in the
Times
. But to lure that kind of revenue, we had to invest in the newspaper, and I didn't know if Zell and his team were really that committed.

Hiller agreed with me philosophically. He took one look at the debt we faced and concluded that the
Los Angeles Times
would be better off being sold to a local investor like Eli Broad or David Geffen. On a practical level, though, Hiller was in a difficult position to effect change. FitzSimons and Wall Street wanted cuts at Tribune's biggest newspapers, and Zell had told Hiller that he—and he alone—would have profit-and-loss responsibility for the
Times
once the deal closed, a break from the past when financial control was centered in Tribune Tower. Hiller was under the gun, and, as we began fashioning a financial blueprint for 2008, I feared the newsroom was heading in one direction—down.

The same thing was happening at newspapers across the county. Everyone was trying to figure out if the changes in print advertising markets were cyclical, a result of hard times triggered by a softening economy, or structural, more fundamental changes spawned by alterations in American advertising and consumption patterns. No one really knew the answer, although I figured it was probably a combination of both and would affect all newspapers and journalists like me.

I wasn't too worried about my immediate fate. I had the ear of the Zell group. Pate and Larsen made it clear that they wanted me to remain in Los Angeles, and I had met in Chicago with Randy Michaels, a pudgy, smiling man who asked me a lot of questions and didn't volunteer much, other than to tell me: “You are in for one hell of a ride.” But as someone who was trained to look beyond impressions for facts, I began to wonder whether I would be able to live up to the pledges I'd made when I had joined the staff of the
Los Angeles Times
the year before.

When I had agreed to become editor of the paper, I had said that I wouldn't take the job unless I felt that I could make things better. I knew at the time that I would have to make some budget cuts and probably lay off some journalists. But I vowed to myself and to the community of concerned readers that I would not preside over the destruction of one of America's greatest newspapers. At all costs, I had to protect the integrity of the institution I ran and, by extension, the news and pass on to my successor a better paper than the one I had inherited. If the credibility of the newspaper and the respect with which it was held in the community diminished on my watch, I failed my community, my craft, my staff, my newspaper, and its owner, even if the owner failed to appreciate the distinction.

Soon I began wrestling with two options. Some friends advised me that resisting cuts was foolhardy and naïve. If
you
don't cut the budget,
someone
else will, the logic went, so why should I be hoisted by my own petard? One day, Stanton walked into my office and told me, “Don't quit.” Although he didn't know it at the time, I knew they had already
talked to him about my job. The other option was to resist—draw that proverbial line in the sand and flush out the facts to see where everyone really stood.

One day I would take a morning walk on the beach and say to myself, “All right, the gutsy thing to do is make the cuts, figure out how to minimize their impact, and preserve as much of the paper as you can. That would be hard, but I could do it. It's easy to walk out, but what do you accomplish?” But the next day, I would wonder if I were just fooling myself to keep a nice salary, a home on the beach, and the heady perks that come as editor of a famous newspaper—a soiree at Helen Mirren's house, a seat at the Academy Awards, or an introduction at a dinner at which Angelina Jolie was also present. The
right
thing to do, I would tell myself, is fight back, hard, even if it meant getting fired—a daunting prospect since I was of an age that it would probably mean the end of my career as a working journalist. I had reassured the readers of the
Los Angeles Times
I was no short-timer and that I would stay as long as it took to resolve problems at the paper. I wasn't done.

I plumbed the depths of my psyche searching for the right answer. I consulted friends, took long walks, thought through my dilemma on bike rides the length of Malibu, the wind my only companion. One day, walking along the surf near my apartment, I decided that the answer didn't cower in the recesses of my mind, waiting for a moment of insight. The answer was in my gut. I needed to rely on the instincts that I had honed during every chapter of my life. Where I'd been, what I had learned, and what I'd become told me what to do. You cut a budget to save a “job.” But you stand firm to honor a calling. If the editor of a newspaper didn't stand up for readers, who would? I had to resist, consequences be damned. The values I had learned at the
Des Moines Register
prevailed: Journalism first, profits second.

By late October, as the banks continued their struggle to weasel out of their loan obligations, a furious forest fire erupted in the mountains of Santa Barbara. Back in the newsroom, coverage of the story started normally: Print reporters swung into action, the online folks
were slow on the uptake since they rarely worked weekends. But a day into the fires, things changed. Thanks to my online newsroom initiatives, the print and online staffs started working in tandem, providing jaw-dropping coverage. I was proud. I didn't have to do a thing; my editors took over. This was the kind of awesome, multimedia journalism the future demanded—videos; photos from professionals and readers alike; great writing; smart editing; crisp, active headlines; taped interviews of people fleeing their homes. A few weeks later, I had lunch with Phil Bennett, the managing editor of the
Washington Post
, who told me he had watched our fire coverage from afar and felt that we had crossed some kind of a line.

After weeks of headlines and dramatic coverage, Maharaj came into my office and suggested we have a newsroom celebration. “We've had so many going-away parties for people who leave,” said Maharaj. “You've hired a lot of people. Why don't you have a party for the people who came here. It would be great for morale.” I thought it a terrific idea and was quite surprised when Susan Denley, the newsroom human relations liaison, told me more than seventy journalists new to the
Times
had been hired since I had become editor. Even though the total newsroom staff, including the Internet, had settled at about 920, I had filled numerous openings and vacancies and had created some new slots for Image.

At the same time, Richard Boudreaux, the
Times
Middle East bureau chief, had scheduled a home leave for December, and foreign editor Marjorie Miller suggested I set up a lunch with Zell, since he had strong interests in the Middle East. I e-mailed Zell and he invited Marjorie, Boudreaux, and me to join him and his wife, Helen, to have lunch at Geoffrey's, a posh restaurant that overlooks the water just south of Malibu. We met on a delightfully warm Friday, ate fresh salads, and downed a couple bottles of white wine. Zell charmed us with his ambitious plans and witty stories, although he didn't tell us any specific plans for the paper. But he did allow that he couldn't wait to get the deal closed. “You will be surprised at what we can do,” Zell told me. “You may end up with more people.”

Encouraged by the lunch, I arrived back at the
Times
building just in time for the newcomers' party, told Hiller about my conversation with Zell, and prepared to make some remarks. As usual, he asked if he could talk to the staff after me, to which I agreed. When Hiller faced the assembled audience, he commented on the more casual look I had adopted for my lunch with Zell and said, cryptically, “I sure hope you didn't stab me in the back.” When someone later asked me what Hiller's comment had been about, I admitted I didn't know. “I think he meant it as a joke,” I said. But in my gut, I suspected otherwise.