AZ Policy Wonk

An unnamed entity sent a letter of intent to buy the East Valley Tribune last week, but a second potential buyer has made it clear that he intends to make a bid for the newspaper in the near future.

Steve Hadland, CEO of the Santa Monica Media Company, said he is still pursuing the purchase of the Tribune. He said an offer he made at the end of August was still on the table and that the deal included a pre-bankruptcy down payment. He said the down payment was small, but he declined to disclose the amount.

“We are still actively seeking the deal,” he said. “We believe we have an executable contract to buy the Tribune, the Ahwatukee Foothills News, Arizona Interactive and the Daily News-Sun in Sun City.”

For details of that pre-bankruptcy offer, go to http://azcapitoltimes.com/azpolicywonk/2009/09/15/a-last-ditch-effort-to-buy-the-east-valley-tribune/

Hadland said he intends to submit a bid if Freedom Communications presents the new buyout offer, which was announced Nov. 20, to a bankruptcy judge. He said the purchase offer by the unnamed entity was a stalking-horse bid, which is known in investment circles as an initial bid on a bankrupt company’s assets to prevent low-ball offers.

“Frankly, the intent was never to shut down the Tribune,” he said. “It’s just that they had to give the 60-day notice as required by law.”

Hadland said he thought he had struck a deal with Freedom executives back in August, but then “they pulled the rug out from under me.”

“I met with them in August, and we were hell-bent on working out the deal,” he said.

Hadland’s company also had made a bid for the Tucson Citizen several years ago, but the deal never materialized.

The Tribune has failed to turn a profit in at least two years, and it has laid off almost half of its staff in an effort to cut costs. It tried several other desperate measures, such as switching the format of the paper to a tabloid from a broadsheet and starting free distribution. The paper also stopped daily circulation and began publishing three days per week.

Hadland said he would like to make several changes if he were to gain a controlling interest in the Tribune. Foremost, he said he wants to restart daily circulation and charge for subscriptions. He said he’s thought about making the Sunday edition free.

“I think putting it back in daily circulation is critical,” he said. “I’d want to expand. Obviously, the newspaper has to make money, but at the end of the first year I’d like to put more reporters on the street and make sure there was more advertising staff out there.”

Hadland said he doesn’t make decisions in a vacuum. “Before I make decisions, I talk to editors, reporters and people on the streets.”

Asked how he intends to make that happen and how he’d be different than others who have talked about similar strategies, he said avoiding the mistakes of many big corporations would be the first step.

“Big corporations have all sorts of corporate charges they lay on their newspapers,” he said. “There is overhead you have to pay corporate, and I’ve never seen a paycheck like the ones they pay their corporate publishers. Wall Street was the worst thing that happened to the newspaper business.

“At the end of the day, if the paper does well, I do well. Everything has to be reinvested in the paper right now.”

Hadland recalled buying newspapers in L.A. for a dime and said it’s ridiculous to ask readers to pay more for each edition and then give them half the news they once had. To make things work, he said, papers need to “go back to the basics.”

“I don’t know all the answers, but I know where to start,” he said. “Find some really talented people and go back to the basics. Cover national news, local news, national sports and local sports. I’ve watched newspapers put out all sorts of goofy sections, and I wonder what’s this all about.”

Hadland said it’s clear that Freedom’s creditors, such as JP Morgan Chase, are calling the shots now and that the corporation is no longer in control of the situation.

So, what’s the next move?

“Freedom will put a contract on paper and put it before the bankruptcy judge,” Hadland said. “Others will have an opportunity at that point to bid against them. We will be there as an active bidder.

As for the deal he was working on three months ago, Hadland said: “We have counsel in Delaware to find out what rights we may have under the former contract.”

When will we know what’s going to happen to the Tribune?

“I would guess they are going to move very, very quickly,” he said. “They want to get it done by the end of the year.”

Most Freedom Communications employees probably have never heard of the company’s MBO bonus program, but the higher-ups know all about it.

The program paid out more than $3.7 million to Freedom’s top executives during the past year, not to mention other expenses such as partner distributions, automobile reimbursements, club memberships and, for at least one executive, housing allowances, according to federal bankruptcy filings.

At least 49 Freedom executives, including publishers at various newspapers across the country, dipped into the MBO bonus program during the 12 months leading up to the company’s bankruptcy filing in September.

Freedom CEO Scott Flanders received two MBO payments totaling more than $1.1 million during that time, including a $400,000 bonus only weeks before the company filed bankruptcy. Others, such as Orange County Register Publisher Terry Horne and Community Newspapers Division President Jonathan Segal, received bonuses totaling six-figures.

Horne, who was publisher of the East Valley Tribune for a short time before heading up the Register, received roughly $200,000. Segal, who was in charge of the division that included the Tribune, received approximately $189,000.

Tribune employees were told Nov. 2 that the paper would shut down at the end of the year, following 118 years of publishing in Mesa. Tribune Publisher Julie Moreno received two MBO bonuses that totaled more than $65,000.

In addition to the bonuses, there were other perks to holding a top job in the company. Freedom Broadcasting executive Doreen Dawson-Wade was reimbursed more than $7,000 for club membership payments, and Flanders was given more than $70,000 in housing allowances.

Following is a list of the Freedom executives who received bonuses under the MBO program (dollar figures are rounded to the nearest thousand):

Olaf Frandsen, Freedom Newspapers
$72,000 (four MBO bonuses)
John Greider – Freedom Newspapers
$9,000 (one MBO bonus)
Tyler Patton – Freedom Newspapers
$19,000 (two MBO bonuses)
James Shrader - Freedom Newspapers of Illinois
$27,000 (four MBO bonuses)
Richard Davis - Seymour Tribune Company
$4,000 (one MBO bonus)
Richard Fazzone – Porterville Recorder Company
$30,000 (five MBO bonuses)
James Shine - Lima News
$16,000 (three MBO bonuses)
Jennie Lambert – Gaston Gazette
$53,000 (three MBO bonuses)
Ray Sullivan - Freedom Newspapers of New Mexico
$37,000 (three MBO bonuses)
Stephan Wingert – Daily Press
$60,000 (six MBO bonuses)
Paul Mauney – Times-News Publishing Company
$35,000 (four MBO bonuses)
Patrick Canty – Odessa American
$66,000 (four MBO bonuses)
David Phillips – Missouri Freedom Newspapers
$20,000 (three MBO bonuses)
Kent Kilpatrick – Illinois Freedom Newspapers
$34,000 (two MBO bonuses)
Arthur Foster – Freedom Shelby Star
$34,000 (two MBO bonuses)
Vernon Debolt – Freedom Eastern North Carolina
$31,000 (five MBO bonuses)
P. McKibbon – Freedom Colorado Information
$25,000 (one MBO bonus)
Steven Pope – Freedom Colorado Information
$30,000 (two MBO bonuses)
Julie Moreno – Freedom Arizona Information
$65,000 (two MBO bonuses)
Thomas Conner – Florida Freedom Newspapers
$30,000 (three MBO bonuses)
Karen Hanes - Florida Freedom Newspapers
$63,000 (four MBO bonuses)
Erik Thomason - Florida Freedom Newspapers
$18,000 (one MBO bonus)
David Schmall – Appeal Democrat
$53,000 (five MBO bonuses)
Michael Burns – Freedom Newspapers
$150,000 (four MBO bonuses)
Dianne Ippolito – Freedom Newspapers
$68,000 (four MBO bonuses)
Levi Knapp – Freedom Newspapers
$49,000 (three MBO bonuses)
Teresa Nelson – Freedom Newspapers
$61,000 (three MBO bonuses)
Jonathan Segal – Freedom Newspapers
$189,000 (two MBO bonuses)
Michael Costa – Freedom Broadcasting Tennessee
$25,000 (two MBO bonuses)
Lawrence Beaulieu – Freedom Broadcasting Texas
$26,000 (three MBO bonuses)
Kingsley Kelley – Freedom Broadcasting Oregon
$42,000 (three MBO bonuses
Robert Furlong – Freedom Broadcasting New York
$29,000 (three MBO bonuses)
James Lutton – Freedom Broadcasting Michigan
$33,000 (two MBO bonuses)
Doreen Dawson-Wade - Freedom Broadcasting
$155,000 (two MBO bonuses)
Edward Brien Kennedy – Freedom Broadcasting
$44,000 (two MBO bonuses)
William Rinchik – Freedom Broadcasting
$51,000 (two MBO bonuses)
Katherine Bartzoff – Freedom Communications Inc.
$5,000 (two MBO bonuses)
Douglas Bennett - Freedom Communications Inc.
$199,000 (two MBO bonuses)
Ken Brusic - Freedom Communications Inc.
$40,000 (three MBO bonuses)
Marcy Bruskin - Freedom Communications Inc.
$98,000 (two MBO bonuses)
Scott Flanders - Freedom Communications Inc.
$1,150,000 (two MBO bonuses)
Michael Henry - Freedom Communications Inc.
$41,000 (three MBO bonuses)
Terry Horne - Freedom Communications Inc.
$200,000 (three MBO bonuses)
Mark McEachen - Freedom Communications Inc.
$33,000 (one MBO bonus)
JoAnne Norton - Freedom Communications Inc.
$31,000 (one MBO bonus)
Rachel Sagan - Freedom Communications Inc.
$113,000 (two MBO bonuses)
Richard Sant - Freedom Communications Inc.
$43,000 (four MBO bonuses)
Cathy Taylor - Freedom Communications Inc.
$35,000 (three MBO bonuses)
Nancy Trillo - Freedom Communications Inc.
$79,000 (two MBO bonuses)

It’s a familiar story these days: Top executives reaping disproportionately large salaries and mind-boggling bonuses while executing poor business strategies and laying off hordes of employees.

It’s happened in the finance industry, construction, automobile manufacturing, computer software and beyond. But now, we can count the newspaper industry among them.

Julie Moreno, who became the publisher of the East Valley Tribune in 2008, was paid more than $334,000 in salary, benefits, bonuses and expense reimbursements during the past year, according to Freedom Communications Inc. bankruptcy documents filed Oct. 31.

As part of that package, Moreno was paid a lump sum of $57,949 to relocate to the Valley from Yuma, where she was publisher of Freedom Communications’ second-largest Arizona paper, the Yuma Sun. Yuma, by the way, is 203 miles from Mesa.

She was given two bonuses in early 2009 that totaled $65,456. The first bonus of $37,123 under the company’s MBO program was paid on Feb. 13. The second, for $28,333, was paid on March 13.

The filings detailed Moreno’s compensation from Sept. 1, 2008, through Aug. 31, 2009. During that 12-month period, more than 150 employees were laid off, low-level employees were forced to take unpaid furloughs in addition to 5 percent salary reductions, the 401k match was suspended, and the company’s net revenue plummeted.

Then, on Nov. 2, the 118-year-old paper announced it will cease operations entirely at the end of this year.

The East Valley Tribune’s demise was swift; during the past three years, the company went from an 83,000-circulation daily newspaper that was adding staff and trying to expand its coverage across the Valley to a free paper distributed on racks three days per week.

Since the beginning of 2008, more than 40 percent of its staff was fired, pages of news were eliminated and what was once a proud broadsheet became a tabloid.

The changes resulted in drastically reduced revenue figures. Freedom Communications reported its Arizona operations garnered revenue of $70.2 million in 2007, $53.3 million in 2008 and $17.5 million so far in 2009. The bankruptcy filings also show Freedom’s Arizona division hasn’t been profitable for the past two years.

The worst of times occurred while Moreno was in charge of the paper, but it would be unfair to say she caused the paper’s problems. The economic downturn and increased marketing opportunities on the Internet represent a double-edged sword that has cut the heart out of the newspaper industry.

Newspapers across the country, in a panic, have reconfigured their business plans to meet the needs of the new marketplace. Cutting expenses has been the norm, and wholesale reformation has been tried in some instances.

The East Valley Tribune was one paper that tried an entirely different approach, and it didn’t start under Moreno’s leadership. I should know – I was there.

In April 2007, former Arizona Republic executive Terry Horne replaced longtime East Valley Tribune publisher Karen Wittmer. While Wittmer was respected by the staff, there was great fanfare when Horne took over. He was hard-charging, spoke frankly and, in a way, had declared war on his former employer. It was exactly what we wanted to hear.

Before he took over, Horne tasked everyone on staff to list what each of us thought the paper was doing wrong and what should be done to improve it. Some of us wrote lengthy responses. I was a mid-level editor at the paper at that time, and my response was eight pages long. A reporter on my team wrote 12 pages.

Several of us noted that the paper was focusing too much energy and money on trying to retain its position in Scottsdale and Tempe, while the Republic appeared to be devoting far more resources to those areas. We suggested redirecting our resources to our stronghold in Mesa and Gilbert, as well as northwestern Pinal County and the eastern cities in Maricopa County, where the Republic was almost non-existent.

Horne, in one of his first acts as publisher, called a series of group meetings to discuss our share of the market in various cities as compared to the Republic’s. He produced compelling figures that indicated we were, indeed, losing the battle in Scottsdale and Tempe. And, frankly, we weren’t doing so hot in some areas of Mesa. In short, our circulation was falling in almost every area.

Weeks later, he unveiled a plan to recreate the paper. The daily edition was going to be distributed free and we were going to publish fewer news pages. In fact, rumor had it we were going to stop publishing the larger broadsheet editions and switch to a tabloid format.

Despite these landmark changes, most of the staff was excited. We believed in Horne. We thought it would work. After all, Horne knew what the Republic knew, and he was ready to do battle.

He must have impressed the corporate folks as well; a few months later they promoted him to president and publisher of Freedom Communications’ flagship paper, the Orange County Register. He was replaced by Moreno, who also served as regional vice president of Freedom’s Pacific Region.

Moreno told me during an interview on Nov. 4 that she was largely an observer during the time Horne and other Freedom executives discussed the new strategies. But she said she believed the plan was solid and she was on board to implement it when her time came. In fact, she still believes it was a good strategy.

“I think that, directionally, the changes make sense, given what we face here in this particular market,” she said. “What we’re dealing with is an economy that has presented challenges for all of us. It becomes very difficult to separate what might be an impact from the model from what might be happening in the broader economy in general. But, directionally, I don’t believe the model was wrong.”

Wrong or not, the concept didn’t work.

During a meeting in October 2008, Moreno announced the elimination of 142 positions, saying “We must turn the boat while we have the opportunity to do that. … We have to position the Tribune to be part of the community for the long term.”

On March 20, a week after Moreno was given a bonus of more than $28,000, the company forced remaining employees to take unpaid furloughs.

That day, Freedom CEO Scott Flanders said: “Freedom continues to generate positive cash flow, and we see the furlough program as a sound business and financial move to help weather the present severe economic conditions that we believe will improve by year-end.”

Conditions didn’t improve. On April 13, more layoffs were announced and the paper transitioned to three-day publication.

Moreno said the layoffs and, later, the decision to close the paper were “gut-wrenching.”
“You never want to see the day happen, because you’re impacting your work force,” she said. “And with the newspaper, it’s not just a job for a lot of people. It’s an organization with a unique identity in the community. When you tell people you work for the newspaper you get, in some circles, a lot of respect for that. For associates who work here, they’re extremely loyal. It’s very difficult. And you know you’re leaving a void for your readers. Words cannot describe how that feels. It’s just not a good day.”

Moreno refused to discuss her compensation package.

“I’m really not at liberty to discuss my compensation,” she said. “It’s not something I care to discuss at this point.”

In the end, hundreds of people will lose their jobs as a result of the Tribune’s demise. But Moreno is not one of them. She will continue on with Freedom in her executive role.

“At the time being, I have a dual role with freedom. I also serve as pacific region vice president. I will likely continue with Freedom in some role,” she said. “Beyond that, I don’t have a necessarily clear assignment at this point.”

Neither do the reporters and other staffers, many of whom own homes here and have raised their families with meager salaries during the past several decades.

Full disclosure: I worked at the Tribune from the beginning of 2006 until December 2007. I left voluntarily to take a job as managing editor of the Arizona Capitol Times. I do, however, have friends who were laid off after I left the Tribune.

Freedom Communications has failed to muster an acceptable offer from anyone interested in buying the East Valley Tribune, and it’s planning to shut down the Mesa-based newspaper at the end of the year.

It’s been a tough road for the employees, who have tried to keep afloat a paper that hasn’t turned a profit for some time. Layoffs became the norm for the past two years, but it apparently was too little, too late for a paper that only a few years ago was boasting a circulation of about 100,000.

The newspaper employees received word this morning that the paper would stop publishing entirely on Dec. 31. That means even more journalists, advertising staff, press operators, etc. will be out of work soon. The paper now employs about 140 people.

It’s a product of the economic downturn, but more precisely it’s about an inability to generate revenue as more readers turn to the Internet for their news. The paper tried desperately to provide hyper-local coverage (neighborhood-type stuff) for East Valley communities, but was constantly stretched too thin to cover adequately all of the stuff happening in the cities of Tempe, Chandler, Apache Junction, Mesa, Gilbert, Scottsdale, and beyond.

The paper also suffered from an identity crisis; it couldn’t figure out where to put its limited resources. While I worked there, executives and top-level editors would argue the merits of keeping open an office in Scottsdale, where it faced serious competition from the Arizona Republic. But it went beyond that; questions loomed whether it should cover Tempe, where it also faced territorial issues with the Republic, or focus more on the outlying eastern parts of Maricopa County and northwestern Pinal County. And what about Mesa, which had been the paper’s stronghold? Should it constrict its operations to its home city, or should it protect the territory it held in other areas?

In the end, it was down to a few core zip codes. Literally. There was a study done on which zip codes had the most readers, and which ones held the most advertisers. Then, word would come down from on high that those were the areas that should be covered by the newsroom.

Myriad practical problems arose from these edicts. It might sound like a sound strategic move, but it was difficult beyond imagination to determine how to cover news that would impact a specific zip code, while ignoring other issues that might be a big deal only a few blocks away. Not only that, but the strategy kept changing - almost weekly.

I was a mid-level editor there for almost two years, and I left in 2007 to take a job as managing editor of the Arizona Capitol Times. Things weren’t going very smoothly when I was on board, and it was clear the paper was headed for big trouble. But I had no idea it would be caput in only a few short years.

It’s ironic that some of the best journalism in the nation has come from that paper, and only a year after receiving a Pulitzer Prize, it would announce its demise. It’s also ironic that the people who were best known for their reporting acumen were laid off in the first couple of rounds of reductions. The paper got rid of many prize-winning writers, or let them slip away, while keeping journalists who were straight out of college. Cheaper, I guess.

Many talented people still work at the Tribune - a few editors who survived the cuts come to mind. And a few of the writers still on staff have considerable skill. But the bulk of the layoffs impacted the highest-paid, most tenured reporters on staff. I can’t help but think that had something to do with the lack of interest among readers during the past year, while circulation numbers and advertising revenue plummeted.

So, now what? Where will East Valley residents get their news? Will a couple of small papers crop up to replace the Tribune? Or will readers who want to know what’s happening in their neighborhood be relegated to blogs?

If the Republic wasn’t in such poor shape itself, I would say this is an opportunity for great expansion of one of the nation’s largest newspapers. But layoffs have impacted the Republic as well, and so have diminished revenues. It will be interesting to see how the behemoth will react. I suspect it will try to take some more territory. But the level of resources it devotes to the adventure will probably be limited.