PlayingnHardball p. 13

By: Tony Case THE MANAGEMENT OF Journal Communications Inc. has begun taking a hard line against an aggressive, $1 billion buyout attempt. At the same time, the representative of the large, unnamed media company vying for the Milwaukee Journal Sentinel parent continues a hard-headed quest to make a deal.
Sextant Partners, a New York investment-banking group led by Christopher Shaw ? who was involved in some key newspaper transactions of the 1980s and has worked for several big media companies, including Los Angeles Times parent Times Mirror Co. ? has tried unsuccessfully for months to get executives in Milwaukee to mull over selling the diversified communications concern, which is 90% employee-owned.
Journal chairman and CEO Robert A. Kahlor and representatives of the Grant family, which controls the other 10%, have rejected taking a meeting with the suitor. But beyond insisting vehemently that the company's not for sale, management hadn't much acknowledged the would-be takeover publicly ? until now.
After Sextant hired former Journal Sentinel columnist Joel McNally, who owns 17,000 shares in Journal, to get employee stakeholders to petition management to entertain the lucrative offer (E&P, June 1) ? and after a lawsuit was threatened ? Kahlor apparently decided to get tough.
u Despite "speculation in the media," Kahlor wrote in a two-page letter to staffers that the company still isn't up for grabs.
He went on to accuse Sextant of enlisting McNally ? as well as the New York public relations firm Markham/Novell, with which Shaw has actually had a relationship dating back 20 years ? for the purpose of "exploiting rumors" that many employees were interested in selling out, something the executive said he'd seen "no evidence to support."
McNally says he's contacted 22% of shareholders so far. Two-thirds of Journal's active employees must agree to a sale.
u Kahlor also responded to several Journal owners having approached a lawyer about bringing litigation to force executives to meet with the prospective buyer. Kahlor said he was "confident" management was meeting its fiduciary responsibilities in regard to the matter, adding he believed there was no basis for legal action. As of this week, no suit had been filed.
u The company also took out a full-page advertisement in the Journal Sentinel, in which Kahlor "set the record straight" that the Journal was not for sale.
"Our company and this community grew up together," he said, "and we believe very strongly that Milwaukee and Wisconsin are best served by local ownership and the voice of an independent media."
uThe $1 billion offer would more than double the current share price. Journal management is looking into how to raise the stock value over the next several years, which would make a buyout less attractive. But vice president of communications Robert Dye insisted the company had been considering that move since last fall, long before Shaw entered the picture.
Journal's stock "is not tied to market value, and we know that," Dye said. "But we haven't decided to do anything. If we did, we would have to put it to a vote of active employees."
In his appeal to staffers, Kahlor suggested that if Journal were acquired, the new owner might sell the company off in pieces to finance the purchase ? an assertion that infuriated Shaw.
In an interview with the deal maker just a few days after he returned to New York from Milwaukee ? where he had met with 40 Journal shareholders and the local press, which has been following this story with great interest Journal Communications' management decides to get tough in battle to ward off $1 billion buyout attempt he bristled at the suggestion the phantom buyer would unload Journal's assets.
"Our client has no intention of selling anything," he maintained. "It's a cash offer, fully financed. This is pure innuendo and inaccurate."
Shaw seemed exasperated from months of butting heads with Kahlor and company.
"I started this open-minded, and now I'm quite upset," he said. "I don't like being besmirched. I don't mind anybody saying anything, as long as it's true."
Shaw feels the employee stakeholders, in all fairness, must be given the opportunity to learn more about the deal. "Once they do," he said, "they may decide not to do it, but they have to listen."
He went on to accuse Journal executives of conducting a "witch hunt" to determine who he met with in Milwaukee, which Dye flatly denied. "The reporters working on this story have tried to find out who they are," he said, "but management doesn't know if Shaw met with anyone."
Although it's privately held, Journal must report financial results to the Securities and Exchange Commission, and Shaw is using those figures to argue his case that the company isn't performing to its potential.
Journal's 1995 net earnings were $44.2 million, up a slight 0.8% over 1994. Like other newspaper publishers, the Milwaukee company's profits have been hampered by soaring newsprint prices and restructuring costs.
Operating earnings last year were off greatly ? at $41.4 million, down 38.2% ? due to the 1995 sale of an affiliate, Perry Printing Corp., according to the company. Revenues were $591.8 million, a 14.3% improvement.
Shaw took issue with Kahlor's considerable pay increase of last year. The executive's total compensation, which included salary and incentives, ballooned 22.3%, to $557,996.
"That's a lot of money, I think, for a medium-sized company like this," Shaw said.
But Dye countered that Kahlor's compensation was "very low" for a company the size of Journal.
Shaw pointed out that Journal's net income had grown by a mere 14% since 1985, when it reported $38.8 million in profits. "Lay that alongside any other media company," he said. "We've all seen newspaper companies that are run well and profitably. I'd rather work for a profitable company that is on its way up. Who wants to work for a company that's losing money?"

Thrown out
In another development, McNally was thrown out of the annual meeting during which Journal's board is elected.
The gathering is open to active shareholders. They rarely attend, however, opting to turn over their voting rights to the board members. Those who no longer work for the company but still have a stake, such as McNally, are not invited.
The meeting is usually in Milwaukee but was held out of town this year, at a Journal printing plant about 50 miles away in Watertown ? "out of Dodge," said one press account, "far from curious reporters."
But the Journal Sentinel's Geeta Sharma-Jensen and other journalists showed up anyway.
McNally said Kahlor, upon seeing him, demanded that he leave. McNally said when he protested that he was part owner in the company, Kahlor got "louder and angrier."
Journal vice president and general counsel Paul E. Kritzer led McNally out of the meeting, explaining that only current employees could attend. When McNally asked how long that rule had been in place, he said Kritzer told him "since yesterday."
When contacted, Kritzer said the rules of admittance had been effective for many years ? "It's what the English would call a common-law rule," he explained. But he admitted they were put in writing only prior to the board meeting.
"I think it's absurd that shareholders are not welcome at the shareholders' meeting," McNally related, "especially at
a time when there's a lot of interest
in what the board is doing on several
levels."
Dye noted that a separate meeting is called every year in which all Journal owners ? employees past and present ? may participate, and McNally attended the most recent one, last March.
Meanwhile, spokespeople from various media companies have been stepping forward to dispel rumors that they are the mystery suitor.
Among them: Tribune Co., which owns the Chicago Tribune ? and for which the Milwaukee paper would seem a logical, strategic aquisition ? and Gannett Co., the country's largest newspaper publisher.
# Editor & Publisher n June 15, 1996