In Tribune Co.’s quest for greater scale, the Holy Grail turned out to be a 62-year-old document called the Chandler trusts.
A sheaf of legal papers, preserved on microfiche and passed down through generations of a California newspaper family, revealed how a blockbuster deal could be accomplished–even though nearly everyone believed it couldn’t happen.
Tribune Co. lawyers had been scouring government files and court records in California and Washington, when a paralegal for the law firm Sidley & Austin found pay dirt in the voluminous files of the Federal Communications Commission.
The lawyers who dusted off the trusts were amazed to find that a document long thought to prevent the sale of the family’s newspaper giant, Times Mirror Co. of Los Angeles, in fact paved the way for it. For decades, potential suitors believed that conditions of the trusts would not allow the company to be sold. In reality, the trusts, through which the Chandler family owns 65 percent of Times Mirror stock, never barred such a deal. All that was needed to secure the family’s approval was a unanimous vote by the seven trustees.
Last week, Chicago-based Tribune Co. pulled off an $8 billion merger that could hardly have been envisioned when the trusts were formed in 1938. How the deal came together shows that even in an environment of multimedia strategies and synergies, the law of the financial jungle–buy or be bought–still rules.
Media companies these days need to be bigger to get noticed by blue-chip advertisers, skeptical investors and even other media companies. The Tribune-Times Mirror deal marries vast operations, including the Chicago Tribune and 10 other daily newspapers, 22 television stations, four radio stations and a collection of on-line properties.
“Being bigger and having a bigger footprint makes us more able to control our fate,” said Jack Fuller, the president of Tribune Co.’s publishing division. The merger would create newspaper, television and Internet combinations in the top three markets–New York, Los Angeles and Chicago–giving the new and bigger Tribune Co. a “bigger footprint” to attract national advertisers.
Yet being bigger may not be enough. Many media companies tout the virtues of multimedia strategies and attracting big advertisers to spend big money on television, print and the Internet. But advertising industry executives point out that no one–not Time Warner Inc., not Viacom Inc., not Walt Disney Co.–has figured out how to make the magic of advertising synergy work on a grand scale.
“It’s not that people haven’t wanted to do it. It’s just very difficult to bring it off,” said Kay Durkin, senior partner and director of national broadcast at the Chicago office of the ad agency Ogilvy & Mather. Advertisers simply haven’t grown used to the idea of making advertising buys across several media at one time, she said.
Still, the players in this deal were undaunted. Last week’s merger announcement was the culmination of a plan that had Times Mirror in Tribune’s strategic cross hairs since at least 1996. “They were the perfect fit,” said one Tribune executive.
The overriding question was whether Tribune could piece them together.
Interviews with those familiar with events leading up to the merger show that Tribune Co. obtained the critical legal documents nine months before Times Mirror executives realized they were a takeover target. Tribune Co. attorneys were also poring over the federal rule prohibiting media companies from owning a newspaper and television station in the same market, searching for the legal clearance to make a run at Times Mirror.
The presumption held by many in the media industry that Tribune would be unable to pursue the company extended even to the Chandler family. And in the clubby world of newspaper owners, where hostile takeovers are practically unheard of, Tribune executives wanted to make sure they could back up their overtures.
Armed with the documents, the attorneys began to develop what would later become a two-pronged strategy: one, to raise the issue of a merger with Mark Willes, Times Mirror chairman and chief executive. Then, if need be, they would approach the Chandler family.
Willes came first.
Tribune Chairman and Chief Executive Officer John Madigan arranged to meet with Willes at the Newspaper Association of America convention in San Diego in late April. They talked in a suite at the Hotel del Coronado.
To Tribune executives, Willes appeared interested. Within a few weeks, Madigan followed up with a letter to Willes containing a conceptual framework of the deal. At Willes’ request, sources close to the deal say, Madigan sent a second letter in June, concentrating on the financial aspects of a merger. That would be their last communication.
“Clearly, in hindsight, [Madigan] had in his mind outright merger,” Willes said in an interview last week. “In my mind, I was looking at cross-promotion opportunities. … I told him that I have no interest in selling the company. And I was under the impression that the company couldn’t be sold because of the nature of the trusts.”
Of course, that didn’t end the matter, largely because Tribune executives were hungry for the deal.
Tribune Co. had been in transition for 15 years, gradually moving away from the dominant newspaper heritage of Joseph Medill and Robert R. McCormick and, increasingly, into television.
McCormick was one of the first newspaper moguls to recognize the power of broadcasting, which is why WGN-AM and WGN-TV are Tribune properties. At the beginning of 1985, Tribune Co. owned seven newspapers and five TV stations. By 1995, regulatory concerns and financial setbacks prompted the company to sell the Los Angeles Daily News and the New York Daily News. Since 1992, meanwhile, the company had bought in patchwork fashion 17 TV stations in mostly major markets and reduced its daily newspaper holdings to four.
By the early 1990s, Tribune Co. had invested $5 million in the fledgling America Online, based on the belief that large numbers of people would eventually get information off a computer screen. Although it was not clear then how this new technology would be commercially viable, the vision of a multimedia strategy linking newspapers, broadcasting and the Internet was beginning to take shape.
But Tribune Co. executives realized they had newspaper gaps in major markets. That led them to focus on Times Mirror, whose newspaper markets included three where Tribune Co. had TV stations: Los Angeles, New York and Hartford, Conn.
When Willes faded from the picture at Times Mirror, another player emerged.
He was Tom Unterman, a laconic 55-year-old Evanston native with a knack for complex financial deals, who had joined Times Mirror in 1992 and become its chief financial officer in 1995–the year Willes joined the company as CEO.
Unterman worked closely with Willes, but over time it became clear that the two men disagreed about the best strategy to build Times Mirror.
Willes believed the company’s future was firmly planted in newspapers. Naming himself publisher of the Los Angeles Times in 1997, Willes spent heavily trying to reconnect the company’s flagship newspaper with the diverse community of Los Angeles.
In addition, he instituted an extremely costly plan to increase circulation by 500,000 within 10 years, even as most newspapers around the country struggled to maintain circulation.
To Unterman, sources say, that strategy took too great a toll on company profits. Moreover, Unterman was frustrated by Willes’ lack of interest in new media.
Willes acknowledges the disagreements, but said it wasn’t something that got in the way. “Tom has had less confidence in the news business than I have,” Willes said. “But it was one of the reasons he was valuable. You want people around you who disagree.”
Unterman also had a connection to Tribune Co.: He and Fuller had served together on the boards of two on-line newspaper ventures. That relationship helped to forge a bridge between Tribune and the Chandler family. Within Times Mirror, however, Unterman’s role raised eyebrows, as did his likely $10 million advisory fee for helping consummate the deal.
At the end of 1999, Unterman went to work for the Chandler family as one of the chief financial advisers to the Chandler trusts.
At the same time, sources say, the family had grown increasingly uneasy with the direction of Times Mirror under Willes, culminating in last fall’s embarrassing disclosure that the Times had entered into a profit-sharing arrangement with a local entertainment arena. Still, the board supported Willes.
For Tribune Co., with Willes opposed to any deal, it was time to approach the Chandlers.
The Christmas holiday season marked the first time the Chandler family had heard of Tribune Co.’s interest in Times Mirror, according to sources at both companies.
Some members of the family and the Chandler trusts met with Madigan and Fuller a short time later, at the exclusive California Club, the 112-year-old private club that was known as a meeting place for CEOs.
On this January day, the business at hand was convincing a prominent Los Angeles family to let go of one of the city’s biggest icons. Unterman characterized this meeting and a later one in Chicago as strictly businesslike. Pleasantries were sparse.
In February, a half-dozen members of the Chandler family came to Tribune Tower for a daylong meeting with high-ranking Tribune executives in a wood-paneled boardroom on the 24th floor.
The Chandlers surprised the Times Mirror directors with the news of their contacts on March 1, the day before a regularly scheduled board meeting.
When Madigan, Fuller and other Tribune executives showed up at the Los Angeles law offices of Gibson Dunn & Crutcher on Saturday, March 11, to make their pitch to the Times Mirror board, the reception was frosty. The Tribune contingent waited for 90 minutes before getting the call to enter, around 4 p.m.
Positioned at one end of a 50-foot room was the board; at the other end were the Tribune executives. No microphones were available. Few questions were asked after the approximately two-hour long presentation.
After that presentation, they waited for some sign from the board. The phone rang in the law offices of Sidley & Austin. It was 10 p.m. and a small group of board members requested another meeting. Madigan and his contingent had to wait because Paramount Pictures executive Sherry Lansing, a Times Mirror board member, had a prior engagement. She eventually participated by phone.
About 20 hours after their meeting the deal was sealed.
(The last five paragraphs as published have been corrected in this text. Among the corrections, the erroneous third from the last paragraph as published has been deleted in this text.)
