Boardroom Battle Raged Over Times-Tribune Deal

The merger agreement between Times Mirror and Tribune companies was accomplished only after a dramatic board-level battle pitting the Chandler family against non-family directors of Times Mirror, according to a document made public Tuesday.

The battle was waged over the non-family directors’ belief that the Chandlers had made a deal with Tribune that benefited themselves at the expense of other shareholders.

It climaxed with members of the family, which nominally owns voting control of the company, threatening to file a lawsuit over the two sides’ radically different interpretations of a key corporate charter provision.

In the end, the family was forced to accept a merger deal that is marginally less advantageous to its interests. The fight also resulted in Tribune’s sweetening its original offer for Times Mirror by $5 a share, to $95.

The latest information, in a formal disclosure statement filed Tuesday by Tribune with the Securities and Exchange Commission, shows the merger debate among the Times Mirror interests to be far more contentious than has previously been reported.

The document also lays out a chronology of the contacts between Tribune executives and members of the Chandler family that sheds light on the dual role of former Times Mirror Chief Financial Officer Thomas Unterman, who was a key advisor to the family at the same time he was a Times Mirror executive.

And it details more than two months of talks in the spring of 1999 between Tribune Chairman John Madigan and Times Mirror Chairman Mark Willes, starting on April 25 when Madigan first raised with Willes the subject of a possible “business combination.”

Times Mirror, publisher of the Los Angeles Times, announced on March 12 that it would merge into Chicago-based Tribune in a transaction valued at about $6 billion. The deal would bring The Times under nonlocal ownership for the first time in its 110-year history and would make Tribune, which owns the Chicago Tribune, KTLA-TV and 28 other media properties, the nation’s third-largest newspaper company.

The merger, at double Times Mirror’s market price before the announcement, is likely to enrich hundreds of company officers and employees who hold stock and stock options. Among the largest beneficiaries would be Willes, who will leave his job when the deal closes.

The value of his shares, stock options and severance will come to about $64.5 million, according to public records and figures he provided The Times on Tuesday.

A document filed by Times Mirror on Tuesday shows that directors moved swiftly to establish lucrative severance packages for company executives in the event Times Mirror changed hands. A board subcommittee met on March 2, just two days after Willes learned of Tribune’s plans, and its plan was ratified by the full board on Saturday, March 11, a day before the deal was struck.

For example, Times Publisher Kathryn M. Downing, should she leave the company, would receive a special severance award of three times her salary and highest bonus. For Downing, that figure came to $1.16 million in 1998, the latest year for which executive compensation is available, making her severance at least $3.48 million. That figure does not include stock options accumulated during her employment.

The drama behind the merger negotiations began shortly after Willes learned on Feb. 29 that representatives of the Chandler Trusts, through which the Chandler family stock is held, had been in conversations with Tribune executives since November and had reached a tentative deal.

Because it owns a special class of voting stock, the family controls about 67% of the votes of all shareholders, despite owning only 28% of all Times Mirror shares. Chandler representatives also hold six of the 16 board seats.

As laid out in a letter Tribune sent to the board on March 3, the tentative deal, a half-stock, half-cash package valued at roughly $90 per Times Mirror share, clearly favored Tribune and the Chandler family. For one thing, the family committed to cast all its votes in favor of Tribune even if another buyer surfaced with a superior bid. That would have allowed Tribune to avoid a bidding war while potentially depriving Times Mirror shareholders of the maximum value of their shares.

In return for their commitment, the Chandlers were to receive all stock for their shares, a tax-free exchange. Because most other shares would be paid for in cash, that meant the non-family shareholders would be burdened with all the tax liability created by the sale.

At a meeting on March 8, the non-family board members decided to fight the terms, in part by wielding an unexpected weapon--a provision buried in the company’s certificate of incorporation allowing them to unilaterally convert the Chandler’s super-voting stock to conventional common stock, reducing the Chandler vote to 28% of the total.

The provision meant that “the independent directors became very real players in the decision and dialogue,” said a person close to the discussions, “rather than having a locked-up deal, which Tribune would have preferred.”

The Chandler family disputed that interpretation of the provision, however, saying that the conversion was designed to take place only after a completed merger, not before.

The Times Mirror independent directors include former Rockwell International Chairman Donald R. Beall, Edison International CEO John E. Bryson, Paramount Pictures Chairwoman Sherry L. Lansing and UCLA business professor Alfred E. Osborne Jr., among others.

At a meeting on March 9, the trust representatives “stated that any attempt to utilize the provision would be litigated by the Chandler Trusts,” a threat that raised the specter of the founding family of Times Mirror suing the corporation itself.

The board’s threat to deprive the Chandlers of their control had an important effect, however: It made the family and Tribune more amenable to renegotiating terms of the deal.

Over the next three days, the deal evolved into its final form. Tribune raised its cash offer to $95 a share and agreed to institute a tender offer that would allow non-Chandler shareholders to get paid for their shares months earlier than they would if the merger took place in a one-step transaction, and agreed to pay 2.5 Tribune shares for each remaining share of Times Mirror.

The Chandler Trusts, meanwhile, agreed to cast no more than two-thirds of their votes in favor of Tribune if a better offer emerged within 20 days of the merger announcement, improving the chances that a higher bid might prevail. No such bid has been made so far.

The disclosure statement also clarifies the history of contacts between executives of the two firms.

Although the document suggests Tribune proposed acquiring Times Mirror almost from the first, Willes has said he interpreted Madigan’s initial interest as being only in some sort of joint venture, not an outright sale. Tribune sources have said that their intent was clear all along.

In any event, the document says that Madigan then sent Willes an outline of the strategic benefits, which prompted a request from Willes for financial projections based on a combination of the two companies. Madigan responded with a June 9 letter offering financial projections based on Tribune paying Times Mirror stockholders $82.50 a share, half in cash and half in stock.

Willes on June 17 responded with a letter requesting that all talks cease, citing his belief that terms of the Chandler Trusts prevented the sale of the company.

The documents show the deal was then revived on Nov. 9 when Tribune Publishing President Jack Fuller spoke with Unterman, then operating in a dual role as Times Mirror’s chief financial officer and as advisor to the Chandler family, during a break in a meeting in Chicago of Classified Ventures, an Internet joint venture that includes The Times and the Chicago Tribune.

Fuller and Unterman spoke again two days later to arrange another meeting on Nov. 27. At that meeting, Madigan and Fuller told Unterman that Tribune was interested in a possible Times Mirror deal.

At the end of the meeting, it was suggested that Madigan and Fuller meet with representatives of the Chandler Trusts, which took place on Jan. 5 in Los Angeles. Four days later, Tribune’s management made a presentation in Chicago to representatives of the trust.

The timetable differs from one offered by Unterman to The Times last week. He said the meeting had been in late December. Said Unterman: “I just remembered it wrong.”

Unterman’s early role in discussions has been a sore spot in Times Mirror’s corporate offices, where executives believe he should have told them of Tribune’s interest. Another sore spot has been an advisory fee of more than $5 million for his work on the deal.