Times Mirror Agrees to Merger With Tribune Co.
Times Mirror Co., parent company of The Times, has agreed to be taken over by Tribune Co., owner of the Chicago Tribune and more than two dozen other media properties, including KTLA Channel 5 in Los Angeles.
The $6.46-billion transaction would create the nation’s third-largest newspaper company and end more than 100 years of local ownership of The Times by the Otis and Chandler families.
It would leave The Times--long the dominant news medium in California--as a wholly owned subsidiary of the Chicago-based Tribune Co. and make Los Angeles the largest city in the country without a locally owned metropolitan daily. The deal would also effectively mark the demise of Times Mirror at a time of increasing, large-scale media consolidation, marked most dramatically by the pending $163-billion merger announced two months ago by Time Warner and America Online.
The loss of Times Mirror would leave Atlantic Richfield Co. as the only remaining Fortune 500 company based downtown, and Arco won’t be an independent company if it is acquired by BP Amoco under a proposed deal awaiting antitrust approval.
Under the terms of the Times Mirror-Tribune deal, Times Mirror shareholders will have a choice of taking $95 per share from Tribune Co. or exchanging each of their Times Mirror shares for 2.5 shares of Tribune Co. stock (which represents about $93).
In either case, the offer represents a premium of almost double Friday’s closing price of $47.94 for Times Mirror stock. That offer would be good for up to 28 million of Times Mirror Class A shares, which represent nearly 42% of the outstanding Class A and Class C shares. If the tender offer is fully subscribed, Tribune Co. will pay out $2.66 billion in cash. Tribune Co. also will assume $1.4 billion in Times Mirror debt.
The premium is one of the highest ever paid for a publicly traded company. Because the deal--which was approved late Sunday night by the Times Mirror board of directors--did not involve competitive bidding, it includes a mechanism under which other bidders would have 20 calendar days to top Tribune Co.'s offer.
Although the Tribune-Times Mirror deal must still be approved by shareholders, the Chandler family initiated the negotiations and owns 66% of the voting shares, which they’ve pledged to vote in favor of the deal.
Federal regulatory agencies will also review the terms of the transaction, but Mark Willes, chairman and CEO of Times Mirror, said late Sunday night that since the two companies do not directly compete in any market, he would be “astounded” if the government raised any objections.
CEO Was ‘Totally Surprised’
Willes said he first learned of the negotiations less than two weeks ago and was “totally surprised” since he was “under the impression that under the terms of the Chandler family trust, the paper could not be sold or merged.” Negotiators worked around that concern by giving the Chandler family four seats on an expanded, 16-member Tribune Co. board and by giving them 40% of the membership of a new Los Angeles Times board.
Although they will not have control of that board--or of daily operation of The Times--they will have certain “special rights,” including a direct involvement in the selection of the publisher of The Times.
Willes said he did not know if Tribune Co. would want a new publisher for The Times, but he said he would definitely not stay with the company beyond the 90 to 180 days required to complete the deal. Kathryn Downing, publisher of The Times, said she does not intend to resign “just because the paper was sold.” Willes said he and other Times Mirror executives would be given severance packages.
The acquisition would give Tribune Co. daily newspapers in the country’s three largest cities--New York (where Times Mirror owns Newsday), Los Angeles and Chicago, and is part of a long-range Tribune Co. strategy of owning multimedia assets in the same markets. The company owns 22 television stations and with its cable and satellite coverage, reaches 75% of U.S. television households. It has long promoted synergy among its various media properties, including a cable TV station and what is widely regarded as one of the best newspaper Internet sites.
The Los Angeles Times began publication in 1881 as the Los Angeles Daily Times and was purchased by Gen. Harrison Gray Otis in 1884. The paper was long a major civic booster for Los Angeles and Southern California, playing a major role in the dramatic growth of the region.
The paper was financially profitable but was widely regarded as a partisan and parochial journalistic mediocrity until Otis Chandler took over as publisher in 1960. Chandler, the great-grandson of Gen. Otis, who had purchased part ownership of The Times in 1882, a year after it began publication and served as its publisher for 35 years, was determined to create a world-class newspaper.
He provided the resources, vision, determination and inspiration, and within a few short years The Times was regarded as one of the three best newspapers in America. But Chandler retired as publisher in 1980 and gradually disengaged from his corporate duties.
Last summer, in an effort to diversify their holdings, the Chandler family trusts and Times Mirror created a new company, TMCT II Trusts. By taking shares in Tribune Co., rather than cash, for their Times Mirror shares, they will further diversify their holdings. Willes said the Chandler family found this opportunity “strategically compelling.”
The Chicago Tribune was founded in 1847, 34 years before The Times, and--like The Times--was long seen as a voice of political conservatism. Col. Robert R. McCormick took control of the paper in 1914, and although he died in 1955, the paper embodied his political views well into the 1970s.
Tribune Co. has long been one of the most profitable media companies, with stringent cost controls that have repeatedly yielded annual profits of 25% to 30%, well above the industry average. The Times has consistently had profit margins of less--sometimes much less--than 20%.
Indeed, after a long, profitable run, The Times profit margin dropped from a 1986 high of almost 22% to 6.5% in 1993 amid a deepening economic recession in Southern California. Two years later, the price of Times Mirror stock had plummeted from a split-adjusted $42 a share in 1987 to $18. Times circulation was also down, almost 20% below its 1991 high.
Cost Cutting at The Times
When Robert F. Erburu retired as chairman and CEO in 1995, the Times Mirror board of directors hired Willes, who had spent 15 years at General Mills and 11 years with the Federal Reserve system, and he immediately cut costs so drastically that he earned the nickname “the cereal killer.” He eliminated 700 jobs at The Times and 2,300 more at other Times Mirror properties, closed the Manhattan edition of Newsday, the Baltimore Evening Sun and several sections at the Los Angeles Times. He also imposed strict cost-containment policies throughout the company.
Reporters and editors at The Times increasingly complained that the cuts were diminishing the reach and quality of the paper. But Wall Street--and the Times Mirror board--liked what Willes was doing--at least until recently; the stock price more than tripled, from $23.25 on the day he took over--June 1, 1995--to a high of $72.63 last fall.
But the stock price has fallen 35% from that high; it closed Friday at $47.94, off 28.4% since Jan. 1. While other newspaper stocks have also declined of late, most have not fallen as far as Times Mirror. The New York Times Co. is down 15.1% this year, for example, and Gannett is down 19.6%. But the price for Tribune Co. stock has declined even more than that of Times Mirror--down 32.5% since Jan. 1.
But Willes was hired not only to boost the stock price--and the profits and dividends for the Chandler family--but to help find new sources of revenue that would take the company strongly into the 21st century.
When Richard T. Schlosberg III left the publisher’s job at The Times in October 1997, Willes named himself to succeed Schlosberg, though, and he began to focus his attention on the paper, rather than the entire company. He could then supervise more directly several of the controversial measures he wanted implemented to break down the wall that, at most good newspapers, had traditionally separated (and insulated) the news department from the business department.
But The Times had a poor year financially in 1998, no major new revenue streams were found and despite a good financial performance by The Times in 1999, Willes’ strategy of focusing on the company’s core business--newspapers--worried many who see newspapers as a mature industry, subject to cyclical downturns.
Among those who were unhappy with this approach was Otis Chandler. Chandler was privately critical of Willes’ business strategy, but when the paper became embroiled last fall in a controversy that affected its journalistic credibility and reputation, not just its financial stability, Chandler went public with his criticism.
By then, Willes had given the publisher’s job to Downing, who had even less experience in newspapers than he did, and she had signed an agreement to make The Times a founding partner of the new Staples Center in downtown Los Angeles. As part of that agreement, The Times last October published a special issue of its Sunday magazine devoted entirely to the Staples Center--and shared the profits from that issue with the Staples Center, a flagrant violation of the paper’s editorial independence.