The Deal from Hell

by James O'Shea

  Michaels had something else in mind. In nine pages of bullet points, he reflected a purge mentality with frank suggestions such as: “Identify change leaders and resisters within Tribune, promote and eliminate as appropriate.” Michaels saw the biggest challenge as changing the culture of the place: “Begin the process of creating products focused on consumer interest and demand as opposed to some idea of what the citizens ought to know. It’s not what they need; it’s what they’ll read, what they’ll watch, what they’ll click on, and what they want delivered to the deck of their cellphone.” In his plan, Michaels disparaged Tribune newspapers as “staid, grandfatherly and dated” publications holding the company back, although he gave no hint of how he’d engineer change. He recommended identifying people in the company they could get to “drink the Kool-Aid.” Finally, he suggested they should conduct a road show “to major business units aimed at resetting the culture. Meet, shake hands with, and answer the questions of as many team members as possible.” Journalists and the Tribune took themselves too seriously for Michael’s money. In his report, he said they should “have fun.”

  Although I didn’t know about any plans for a road show, a preview came to Los Angeles after Pate called and said Zell had received a request for a meeting with a prominent group of Los Angeles citizens worried about what was going on at the paper, including the late Warren Christopher, the former Secretary of State and probably the only high-level member of the Los Angeles community that could rally the disparate political, commercial, and cultural factions of Los Angeles. “They said Dennis wouldn’t come out and meet with them,” Pate said, “but I don’t see anything wrong with Sam coming out and meeting them, do you?” I agreed that a meeting would be fine.

  Warren Christopher and his group had been quite supportive, urging me to stand by my statements that I would not let the paper deteriorate. They believed that a first-class city needed a first-class newspaper and that the Los Angeles Times should be on a par with papers out East. “We view you as someone who we hope will hold the line and maintain the paper’s stature,” Christopher told me. So I worked with Hiller on a plan to stage a lunch in a large room that was once Dorothy Chandler’s personal apartment at the Times.

  A few weeks later, Zell showed up at the Times for the lunch wearing his signature jeans and open-collared striped shirt. “I was going to wear a suit and tie,” he told the guests, “but I decided not to because I wanted you to see me the way I am.” About two dozen women and men sitting around the large U-shaped table seemed charmed at his open and folksy manner. Zell fielded polite yet pointed questions with blunt but respectful replies. The guests came from the world of politics, business, culture, and film, men and women of accomplishment who cared about their community and its newspaper.

  Over dessert, when Christopher, the gray eminence, spoke, he diplomatically told Zell of the group’s concerns about cuts at the newspaper, particularly rumors of cuts in the Los Angeles Times foreign bureaus: “You know, Sam, we view our community as the gateway to the Pacific and we think foreign coverage is quite important.” Without missing a beat Zell shot back, “You know, Warren, I don’t give a fuck what you think. What I give a fuck about is what David Hiller here thinks, because from now on he’s in charge of this newspaper, not some bureaucrat in Chicago.”

  The room fell silent and all eyes turned to Christopher in his tailored blue suit, French cuff shirt, and tasteful tie, exactly the kind of wardrobe that Zell and his team disparaged. “Well, Sam,” Christopher replied, “we appreciate your frankness.”

  I had scheduled a meeting in my office between Zell and several editors eager to bend his ear. Midway through the session, I asked Steve Lopez to come in to meet the new boss, and both handled the situation with grace and humor. As we walked to the Globe Lobby in the Times where Zell’s driver was to pick him up, he grabbed my tie and said, “What’s with this?” I replied that I wanted him to see me the way I came to work every day and that I was sure he would not want me to dress down just for him. He smiled, pulled out a cigarette, and left for the airport.

  18

  Closing the Deal

  Not long after Zell requested hundred-day plans from Pate and Michaels, Wolinsky walked into my office and shut the door, announcing that there was something he had to tell me. Hiller, Wolinsky said, had been inviting groups of people to tell him how they thought I was doing as an editor, and how well I related to the newsroom.

  The news didn’t come as a shock to me. A few days before, Davan Maharaj, the paper’s business editor, had cryptically told me, “There are people who are supposed to be watching your back who are not watching your back.” And several others had appeared in my office in recent days with similar reports, indicating that Hiller was also asking people what they thought of Russ Stanton, the editor I had placed in charge of the newsroom’s Internet efforts and a favorite of both Hiller and FitzSimons. I knew Hiller and I knew how he operated; he’d often asked me about people in the same fashion. I knew that he and FitzSimons liked Stanton because he wasn’t, well, like me.

  I sat down and fired off an e-mail to Hiller letting him know that the reports had gotten back to me and that he was undermining me, feeding newsroom speculation that he was looking for an excuse to depose me. If that’s what he wanted, he, of course, had every right to replace me. But I preferred to deal with him head-on. Hiller denied he had any such intentions. But I knew by now that the penguin initiatives championed by FitzSimons drove his almost frantic pleas for change for change’s sake.

  After I had failed to show up for his Chicago meeting, FitzSimons came to the Los Angeles Times for a party hosted for KTLA’s anniversary. The Zell team had made it increasingly clear that FitzSimons would not be the CEO once the deal closed. Frantz, the managing editor appointed by Baquet, had decided to step down, and I had appointed two new managing editors, John Arthur and John Montorio. I set up a lunch for them to meet FitzSimons. The night before the four of us would sit down, FitzSimons sent me an odd journalism review article regarding how journalists laid off at Belo papers in Dallas had found new, rewarding paths in life. When one editor heard FitzSimons was coming to Los Angeles again, he quipped: “I guess he wants to piss on the fireplug one more time.”

  The next day FitzSimons and I both arrived early, and we had a “frank exchange of views.” He recited his litany—he wasn’t too impressed with me, thought that I’d betrayed Hiller, and I should have kept silent about bonuses. I’d heard this all before. But this time FitzSimons extended another jab, voicing his dismay at my tolerance for a newsroom that had videotaped my introductory speech and put it online before clearing it with me. “If someone had done that to me, I would’ve fired him,” FitzSimons said. Given that almost everything I said in the newsroom was simultaneously published in LA Observed, the incident hadn’t bothered me. Besides, I thought firing someone on my first day as editor for covering a story in my own newsroom wasn’t a good idea. And then, of course, he attacked Wolinsky.

  I told FitzSimons that my initial views about the Times had changed once I got to know the paper and the people better, particularly Wolinsky. “When I first got here,” I told him, “I thought he would be someone that would be a problem for me, but he actually turned out to be a help.” FitzSimons retorted that no one else shared my view of Wolinsky, an assertion that was patently untrue.“What is this with you and Leo?” I demanded. “He’s a one of my deputies. Why are you, the CEO of this company, so obsessed with him? I’d think you’d have better things to do.”

  FitzSimons came right back, letting me know he thought my refusal to fire Wolinsky revealed my reluctance to make an unpopular decision and my ultimate desire to “play to the staff.” “We go back a ways,” FitzSimons said, “and I just wanted to come here and talk to you honestly.” When at last Montorio showed up, things returned to civil ground, and we made our way through lunch. In the end, I think FitzSimons felt he owed me a thumb in the eye. Just before he left, I asked him if there was a hi
dden message in the journalism review article he’d sent me. He laughed and said, “No. I just wanted you to see that all of the news about layoffs isn’t bad.”

  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 t
he 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.