The Jack Griffin – Eli Broad Stare-Down in L.A.
It’s power vs. power. Who will blink first — and, importantly, how quickly?
On Thursday, a group of 60 Los Angeles civic leaders, topped by two former mayors and such heavyweights as Mickey Kantor, chairman of the Los Angeles 2020 Commission; Anthony Pritzker, managing partner of the Pritzker Group; and David Fleming, founder of the Los Angeles County Business Federation, emerged to urge a return of the L.A. Times to “local” control.
The group sent an open letter to Tribune Publishing CEO Jack Griffin. Griffin had briefly visited L.A. early in the week. On Tuesday morning, he fired his publisher of one year’s standing, Austin Beutner. The “termination without cause” took less than a minute, as Beutner was then escorted back to his office by T-Pub SVP for Human Resources Cindy Ballard – the same drill employed as protocol as so many newspaper jobs have been cut over the last decade. (“Tribune to Fire Austin Beutner”, my first exclusive story on the affair.)
“As you move ahead, we strongly urge you to continue with leadership that knows and loves Los Angeles and shares our commitment to its future. Anything less would be taken by the community as a message that the Tribune Company has little interest in the future of this great city….We understand that your goals are both to serve a community and to oversee a profitable business enterprise,” the letter further emphasized. “However, we share Austin’s view that the paper’s commitment to Los Angeles is a key to its financial success as well.” (For background on that civic plan, see “What are they thinking? Austin Beutner’s California turnaround plan.”)
First published at Politico Media
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One other signee name is most noteworthy: Eli Broad. Broad is the 82-year-old L.A. businessman and philanthropist whose bid for the paper was rejected by the Tribune board only last Thursday – at the same meeting in which the board voted to fire Beutner.
In effect, L.A.’s power brokers – some of them buddies of Beutner, the guy to whom Tribune itself handed over the keys to the Times kingdom within a week of that 2014 corporate split – tell Tribune this: “You board made two wrong decisions in last week’s board meeting. You shouldn’t have fired Beutner, and you shouldn’t have summarily rejected Broad’s expression of interest in buying the Times.”
Back at Tribune headquarters in Chicago, the letter now ups the ante on the Tribune board’s decision to dismiss billionaire Eli Broad’s buying interest, with too little consideration—a decision that could be challenged legally.
Thus, the big question as Tribune enters its first full post-Beutner week with the Times: Does the letter materially change the company’s thinking about its L.A. strategy?
This is a battle, now public, for ownership of the Times, and its sister paper, the San Diego Union-Tribune, which Beutner and Griffin bought just four months ago, creating the California News Group. That group – even without the Orange County Register, a compromised franchise that by business logic would roll into the group at some not-to-distant point – reaches the largest single largest regional population in the country, somewhat under 20 million. The stakes here are big.
While the letter only makes the point of local direction, and of support for Beutner’s civic-oriented strategies, Griffin will read all these pressures between the lines of this letter, as we do.
In L.A., out of the blue, a bigger civic–corporate gauntlet is now thrown down, and TPUB’s management and board now must newly strategize. Intriguingly here, it is capitalists challenging the freedom of ownership to do as it pleases. That’s a phenomenon we haven’t seen much in the chaos of ownership, cutback and misery that has consumed America’s regional press for more than half a decade.
Reconsider the Broad offer
It was no secret that Beutner believed the L.A. Times would be better off under private ownership than single-share class public ownership.
Simply, he wanted to emulate the models we’ve seen at the Washington Post (buyer Jeff Bezos), Boston Globe (buyer John Henry) and Minneapolis Star Tribune (buyer Glen Taylor). All bought still-noteworthy dailies, pledging to fund them through a longer-term print-to-digital transition, keeping newsroom stronger, even at the expense of lower profits.
Back in the summer of 2013, in fact, Beutner had teamed up with Broad, and others in L.A., to try to buy the Times from the then-Tribune Company. Tribune then opted not to sell, but to split its company into two, with today’s TPUB the home of its newspapers.
Even after Beutner had taken the job as LAT publisher, I’d noted his continuing belief in the privatizing notion. If I knew about it, so clearly did Jack Griffin and the Tribune board. They also knew an offer would be coming at some point.
It arrived, as Eli Broad talked with Tribune Publishing board chair Eddy Hartenstein in mid-August. (Given Beutner’s own legal responsibility to Tribune, he was not involved in that approach.)
Broad, believing he had been encouraged by Hartenstein to proceed with his buying interest, according to several sources that wish to remain confidential, did so. Then, when he heard a couple of days after last week’s board meeting that the board wouldn’t entertain an offer, he was surprised. The reason he was given: The tax on such a sale would be one that Tribune Publishing didn’t want to bear.
In the midst of this Griffin/Beutner/Broad affair squarely sits Hartenstein. He’d served as the Times’ publisher, pre-split, 2008-2014. In fact, he’s the guy who recruited Austin Beutner for the publisher job. With double irony, Hartenstein convinced both Beutner to work for the public Tribune company and Jack Griffin to hire him. Now, as chair of the Tribune Publishing board, he’s the logical, legal guy to whom acquisition offers would come, which Broad’s did. Hartenstein is truly the man in the middle.
As the L.A. protests publicly demand a rehearing of that interest, a private question, so far unpublished, issue has arisen. In this matter, in which some issues announce themselves clearly, others lurk between the pages.
The stealth “legal” question, raised quietly: Did the board have a legal responsibility to proceed at least somewhat further with Broad?
Longstanding legal precedent, known as the “Revlon duties,” make it clear that a board’s major responsibility is to “obtain the highest value reasonably attainable.” That means that if a sale might be in those shareholders’ best financial interests, a board can’t reject one out of hand. There is, of course, much nuance around Revlon that’s kept the legal profession well-employed. (In fact, it was this doctrine that scared the hell out of some two years ago when the Koch Brothers’ heavy breathing about the allure of buying all the Tribune newspapers started a different kind of summer revolt. People were shocked that the Kochs could take over the U.S.’s third largest newspaper company simply by outbidding anyone else.)
This year, Broad hadn’t yet made an actual financial offer, wanting to see current company financials, within a confidentiality agreement, before doing so. While the “tax hit” argument may have validity, it’s of course impossible to determine potential Tribune post-tax, net gain if Tribune doesn’t know Broad’s price.
Within this line of reasoning, say some, the Tribune board response should not have been, “No,” but rather, “How much?”
Two years ago when Broad and Beutner pursued the Times, they were willing to look at buying all the Tribune newspapers (now nine in total) if that’s what it took to get the Times. Would Broad now offer a price for the entire company, especially given its since-reduced market value?
Then, there’s the third pressure point: Tribune’s shareholders. All newspaper stocks have had a tough year, but TPUB is now down 55% from its initial price of a year ago. That’s better than some peers and worse than others, but overall, a vote of declining confidence in Tribune’s ability to turn itself around profitably, sooner than later.
Consequently, if shareholders believe they can recover some of their share price losses through an L.A. sale, some could be inclined to push for it. One theory: activist shareholders push for a profitable sale and demand a special dividend out of it, to assuage the paper loss in their holdings.
If Eddy Hartenstein finds himself wearing a few hats at this party, the position of Bruce Karsh, co-chairman and chief investment officer of Oaktree Capital Management, still the Tribune’s single largest shareholder with a 15% stake, proves pivotal. What does Karsh – an L.A. resident, close to a number of parties in this growing dispute – want to do?
The Tribune board must anticipate that the Broad offer won’t now go away easily.
The Tribune’s own filings offer a clue as to the company’s readiness.
When the Tribune board put Baltimore Sun publisher Tim Ryan into place Thursday, it filed a Form 8-K with the SEC, noting Ryan’s new compensation of $650,000 and bonus/stock options. In addition, it noted what would be fairly boilerplate severance terms: “If the Company terminates Mr. Ryan’s employment without cause on or after a change in control or he resigns for good reason due to a change in control, subject to his execution and non-revocation of a release of claims, the Company will pay him, in addition to his previously-accrued compensation, severance equal to the following: (i) in the case of a change in control of Tribune Publishing or the Company, 12 months of his base salary and one year of his annual targeted bonus amount.”
That clause seems fairly standard in the industry and in other Tribune publisher contracts.
What distinguishes Ryan’s contract is the next line: “or (ii) in the case of a change in control of Los Angeles Times Communications LLC, 24 months of his base salary and two years of his annual targeted bonus amount, plus, in either case, any unpaid incentive bonus for the preceding year.”
Make of that exceptional clause – one not found in other Tribune publisher contract filings – what you will, but it seems like a potential Times sale is indeed on someone’s mind.
If the small board of six must decide how to move through these new choppier waters, CEO Griffin’s navigation is now put front and center.
Griffin took on the Tribune turnaround four years after he had fired as Time Warner’s CEO. That ouster was widely reported as the rejection of an outsider by Time Inc’s storied culture.
Griffin had – and has – something prove. His five-point Tribune transformation strategy has been hampered by the worsening newspaper economy. Going into the job, he knew the work would be a race against time, given that economy and the thin cash cushion provided him by parent Tribune at split. (While Rupert Murdoch split off his newspaper-centric News Corp with a gift of $2 billion, Tribune got $50 million and the obligation of a $350 million senior term loan, used to immediately pay its parent company a one-time $275 million dividend. In addition, the papers’ real estate and growing digital assets were both snatched by Tribune Media.)
Griffin might well have had (and still have) profound questions about the impact on his company of losing yet more of its assets. The California group now directs about 40% of the company’s revenue and readership. In Tribune Publishing’s race against the clock, that loss could be pivotal would make Tribune a significantly smaller company, and a less prestigious one.
Reinstate Austin Beutner
What of the other undercurrent in this letter—the explicit rejection of Tim Ryan and the implicit call to return Austin Beutner?
On the surface, Griffin’s decision to fire Beutner can be seen as straightforward by anyone who has ever managed an enterprise.
Plainly, Tribune and Jack Griffin have the legal authority to fire a publisher they no longer wanted on their team. The civic leaders’ claim here –one that we haven’t seen widely asserted– is that both the L.A. community and the L.A. Times business fortunes would be better served by Tribune admitting error and reversing course.
The group wants new publisher Tim Ryan sent back to Baltimore, where he has managed the Sun for eight years. Only implicit in the request/demand: we want the reinstatement of Beutner, himself a civic leader of long standing.
No one should have the expectation that Griffin would ever reinstate Beutner. Even if it would, we’d have to doubt that Beutner would accept the job back. A relationship that never got above tepid is now cold, given the events of the last week.
The civic argument meshes again here, interestingly, with the business one. Implicit in the civic leaders’ letter is the question of their future support of the Times.
Beutner had appealed to local leadership for advertising support; presumably, under Ryan, company leaders may be less inclined to give the Times the benefit of ad doubt, in spending marketing money.
The flipside of support is opposition, and the Tribune is being told that it shouldn’t expect much community and ad support if it stays its new course. How powerful an instrument that really will be remains to be seen, but it returns the question to one of dollars and cents: What is the price, Tribune must ask, for not selling.
Tribune likely anticipated it could fire Beutner and move on more quickly with business as usual. Now, though, if the Times and U-T stay in the Tribune fold, how do Griffin and Ryan start over, quickly, in L.A., to boost financial performance and regain community – and advertiser — confidence? That’s got to be a big calculation as management and the board consider a fight or flight strategy.
Layoffs—likely to involve newsroom staff cuts and to cut into Beutner’s initiatives —loom for Ryan. Those cuts, and this reassertion of control by the Tribune company, will all be very public gestures.
Why did all of the tensions break into a boil now?
Griffin and Beutner disagreed on basic strategy and on the specifics of near-term financial performance. The big and growing split: how much the L.A. group, topped by Beutner’s out-of-the-newspaper box hires, would strategize and direct its own future, and how much Tribune corporate would do so.
In fact, it may have been Griffin’s May hiring of New York Times veteran digital and ad exec Denise Warren that led directly to the firing. Warren, acknowledged by even some of Beutner’s own new hires to be Tribune’s smartest strategic voice, has been told to bring the company into a single product, tech and national ad vision, one not shared by Beutner’s crew. In addition, Tribune never bought in to Beutner’s unique and primary strategy: investment in a community expansion strategy to grow the business over the next several years.
If, out of this storm, Tribune sells to Broad, presaging a Beutner Restoration, that reversal of fortune would seem mind-bending. For all, time is clearly is of the essence. Within days of the firing, three of Austin Beutner’s top hires have followed him out the door.
Perhaps other L.A, or national, buyers may come out of the woodwork. With the Times presumably worth less than half what it was a year ago, participants in this unfolding story report phone lines burning up with possible – if very speculative – interest in buying a chunk of the Times.
