Meddling In Milwaukee p.11

By: Tony Case IN A RELENTLESS push to get executives of the Milwaukee Journal Sentinel's parent company to consider a $1 billion buyout, a New York broker has hired a former columnist of the newspaper to measure interest among employee owners.
At the same time, some Journal Communications Inc. unit holders are looking into filing a lawsuit to force management to meet with the prospective buyer.
Sextant Partners ? a newly formed group led by Christopher Shaw, a prominent figure in the newspaper acquisition binge of the 1980s ? first approached JCI last winter with the megabucks offer, made by an unidentified large U.S. media concern.
JCI executives insisted at the time that the company was not for sale, and their position hadn't changed as of this week.
But Sextant hopes its new find ? Joel McNally, a 27-year veteran of the morning Milwaukee Journal who lost his job when the paper merged with the afternoon Milwaukee Sentinel ? can impel employees who control 90% of the diversified communications company to sign a petition urging management to come to the table. He is drawing an hourly wage for his efforts.
Now a freelance journalist and media writer for Milwaukee magazine, McNally joined forces with Shaw and his team because he and others with a stake in JCI felt management was wrong in not consulting them before rejecting the lucrative proposition out of hand.
"The Milwaukee Journal Sentinel is held up nationally as unique because employees own most of the stock ? it's kind of an experiment in democracy or something. But the shareholders aren't treated as employee owners," McNally said.
"Here, an offer was proposed, and the company's CEO announced unilaterally that he would not consider the offer. The opinions of the shareholders were never sought ? and opinions of board members weren't sought, either."
McNally, who owns about 17,000 JCI shares valued at $700,000, was quick to point out that the company didn't simply hand out the stock as part of some benefits package ? the employees paid for it, and certainly have a say in any potential purchase.
"We bought it with our own money, usually with huge bank loans," he said. "Interest rates don't always keep up with the dividends, but it's something the employees did because we thought ultimately it would pay off ? and pay off really big."
JCI shares are currently being offered to employees at $36.24. But the amount of money being bid for the company ? which, along with the 300,000-circulation Journal Sentinel, owns secondary-market television and radio stations, a shopper group and other media properties ? would more than double the stock price.
Several stakeholders wanting to know more about the buyout plan have aggressively taken matters into their own hands, enlisting attorney William Dixon of the Madison, Wis., firm Davis, Miner, Barnhill and Galland to investigate bringing litigation on their behalf.
"We are looking at the trust agreement and other areas to determine whether a suit would be successful," Dixon said. "If so, and they want to go ahead, we will file it."
JCI spokesman Robert Dye said he couldn't believe there was any basis for legal action, adding that he was "very confident management is meeting its fiduciary responsibilities and will continue to do so."
McNally said he had contacted somewhere between 400 and 500 of JCI's 2,600 employee-owners so far and had heard "hardly a discouraging word" about arranging a powwow between company executives and the mystery suitor. But he has a long way to go, as fully two-thirds of active employee shareholders must agree to the terms of a sale. Only current staffers can vote their shares.
Shaw himself acknowledged last week that this was going to be a lengthy process, perhaps as long as another year.
"These things take time," he said. "They don't just happen instantly. Some take as long as two or three years."
When asked why he thought JCI execs were being obstinate, Shaw responded: "A lot of people think these things will just go away. I've seen it time and time again. But what went away was the company, not the people agitating ? but I'm not agitating."
Management isn't the only party rebuffing takeover talks. The descendants of publisher Harry J. Grant ? who instituted the employee stock ownership plan (ESOP) in 1937 to reward workers and promote local ownership of the Journal Sentinel ? control the remaining 10% of the company, and they've presented a united front with JCI ranking executives, including chairman and CEO Robert A. Kahlor, who has been most vocal in asserting there would be no negotiations.
"The founders of the employee ownership program made clear their intention that the newspaper was to remain independent and employee-owned forever," Kahlor said when Sextant first came calling, adding he was determined to see to it the ESOP "would continue in the manner the founders had intended."
Grant's employee-shareholder arrangement has allowed scores of JCI employees to retire most comfortably, and many have settled into their golden years with six-figure bank accounts. The lure of these riches, along with loyalty to the Grants, have kept away predators ? such as the Boston Globe, which made a $600 million bid for the Journal Sentinel in 1986, several years before its own acquisition by the New York Times Co.
But huge staff cuts resulting from the merger of the Milwaukee dailies last year, compounded with management's snubbing of Sextant, have some of the troops restless, possibly making the climate right for a takeover.
The Milwaukee situation harkens back to a decade ago, when newspaper brokers made a blood sport of coaxing disgruntled family owners ? disappointed with lackluster returns, and eager to get top dollar with demand high and prices in the stratosphere ? into handing over their legacies to large chains.
As head of the investment bank Henry Ansbacher Inc., Shaw helped negotiate some key deals of the day, including Gannett Co. Inc.'s notoriously schismatic acquisition of the Louisville Courier-Journal from the Bingham family. Along the way, he earned somewhat of a reputation as an enfant terrible in the industry.
At a 1989 meeting in Newport, R.I., representatives of closely held media companies gathered to lament the brisk decline in family newspaper ownership, and mull over how to combat it. There, Ansbacher was the only broker singled out for its strong-arm tactics. But Hylton Philipson, Ansbacher's president at the time, defended his firm, maintaining it simply strived to get clients the full value for their shares.
Sextant's stratagem in Milwaukee "is reminiscent of some of the things Ansbacher used to do, trying to stir up, foment, in hopes of creating a deal," observed media analyst John Morton of the firm Lynch, Jones & Ryan.
While such maneuverings aren't illegal, or even necessarily improper, they are quite uncharacteristic of the newspaper business, Morton pointed out.
"Generally speaking, newspapers don't indulge in that sort of thing, making unfriendly overtures," he said.
There's a handful of exceptions ? among them, S.I. Newhouse's successful play for Booth Newspapers Inc. 20 years back and Dow Jones & Co.'s futile bid in the 1980s for the Des Moines Register, which Gannett would ultimately snag.
Nor would Milwaukee be the first newspaper under an ESOP to go to a chain. In recent months, California-based Copley Press Inc. bought the Journal Star of Peoria, Ill., and its sister paper, the Register-Mail in Galesburg, Ill. Times Mirror Co.'s Hartford Courant used to be employee-controlled, as well.
Much has been written about big newspaper companies, such as Times Mirror, slashing their resources to offset ballooning expenses. But smaller publishers have also been hit hard by the shrinking newspaper advertising market and skyrocketing newsprint costs ? and they, just like the big boys, have had to trim.
The Journal Sentinel's streamlining moves have been particularly brutal. Not only has it faced the same obstacles as other newspapers, but the merger of the two dailies in April of last year led to the elimination of 250 employees. As everybody knows, cutting is a sure-fire means of killing morale.
Several staffers in Milwaukee have wondered aloud whether they would be any worse off under corporate ownership.
McNally, one of about 100 news staffers whose positions went away with the merger, complained JCI was "run the way many companies are being run ? from the top and without any concern about the interests of employees, and, in this case, employee shareholders."
Mary Beth Murphy, a reporter for 27 years, added: "We must be realistic and realize that, even under this ownership, nothing is for sure. That sort of went out the window with the merger."
Murphy is quick to point out that, while she would be "prone to want to make a profit," many questions regarding a buyout remain. "We don't have enough information in front of us," she said.
Meanwhile, other employees have come out strongly against a sale.
Lois Blinkhorn, the Journal Sentinel's book editor, said she was "surprised people have sort of thrown idealism out the window and are so much more interested in money ? and I think of journalists as being pretty idealistic. But I guess newsrooms always feel the sky is falling."
Blinkhorn believes Shaw's approach is "kind of a lightning rod for a lot of the bitterness and discontent resulting from the merger. There's a lot of anger about the merger, which may have something to do with this desire to take the money and run."
But the editor would hate to see future employees robbed of the post-career benefits their predecessors enjoyed.
"The ESOP is a wonderful plan," she said. "I've seen so many people who never made huge salaries retire with a lot of security. The older I get, the more valuable I realize that it is for people."
?(" A lot of people think these things will just go away. I've see it time and time again. But what went away was the company, not the people agitating-but I'm not agitating) [Caption]
?(-Christopher Shaw, Sextant Partners) [Photo & Caption]
?(The inaugural edition of Milwaukee's morning Journal and afternoon Sentinel, which were merged last year) [Caption & Photo]
?("The founders of the employee ownership program made clear their intention that the newspaper was to remain independent and employee-owned forever.") [Caption]
?(-Robert Kahlor,chairman and CEO, Journal Communications Inc.) [Photo & Caption]