Billionaires Fight to Buy The Los Angeles Times
LOS ANGELES, Nov. 8 — David Geffen spends more time schmoozing with an elite cadre of journalists than just about any other mogul in Hollywood.
The billionaire often invites them to his sprawling estate in the heart of Beverly Hills, where De Koonings and Pollocks hang on the walls. In September, his guest was Leo Wolinsky, a managing editor of The Los Angeles Times, and they broached the delicate question of whether Mr. Geffen might try to buy the struggling newspaper.
If Mr. Geffen gets his way, he will be spending a lot more time with journalists.
Lately his name has been prominently linked with a potential purchase of The Times, fueled in part by his recent sale of hundreds of millions of dollars’ worth of paintings from his world-class collection.
In addition, his wooing of Mr. Wolinsky, with whom he has a continuing dialogue, has made him a favorite potential owner among many top editors.
But if he wants the nation’s fourth-largest newspaper, he will have to fight for it.
Two rival billionaires, Eli Broad and Ron Burkle, joined forces Wednesday to make a bid for all of the Tribune Company, to get their hands on The Times. The details of the bid were not released, but like Mr. Geffen, they have said they want the paper not just for financial gain, but also to invest in an imperiled civic institution. [Page C4.]
On Tuesday, the Tribune Company, with a market value of $7.7 billion, dismissed The Times’s top editor, Dean Baquet, who had declined to make further newsroom cuts. Mr. Geffen declined to comment for this article. Indeed, he has not yet spoken publicly in detail about his desire to buy the paper.
But the man with a record of stellar success in pop music, theater and contemporary art, along with a reputation for “blind ambition,” “ferocious drive” and “ruthless single-mindedness,” as observed in a detailed biography of him by Tom King published in 2000, has told friends and colleagues that buying The Los Angeles Times is his next major goal. Mr. Geffen, a Democratic activist, has indicated he would be willing to accept lower profits at the newspaper so he could invest in making it world class.
Because of Mr. Geffen’s singular clout — his enormous influence in Hollywood, his multibillion-dollar fortune, his political activism — many of those who know him well wonder what kind of owner he would be.
While he cooperated initially with Mr. King, the late Wall Street Journal reporter who wrote “The Operator: David Geffen Builds, Buys and Sells the New Hollywood,” Mr. Geffen stopped speaking to the reporter when he became unhappy with the direction of the book.
He bombarded the publisher, Random House, with phone calls and a visit from his lawyer, Bert Fields, to complain about the book’s accuracy ahead of publication. In the end, Mr. Geffen, whose aggressive manner often intimidates friend and foe alike, could not produce evidence of his claim that the book was inaccurate or dishonest, as he said at the time.
But several people who know Mr. Geffen say they doubt he would take a direct role in running The Times. Irving Azoff, a music industry executive who has known Mr. Geffen for years and who now manages the Eagles and Christina Aguilera, said Mr. Geffen was not a micromanager, and was more likely to hire editors with whom he sees eye to eye. “I am sure David would hire people that think the same as him, so he would be sure they didn’t like who he didn’t like before he hired them,” Mr. Azoff said.
The local interest follows some initial offers from private equity firms for the entire company, which Tribune deemed too low, opening the bidding for parts of the company as well. Tribune could still decide not to sell any of its assets — which include 10 other newspapers and 24 television stations — or to sell other assets and not The Los Angeles Times.
The Los Angeles billionaires are part of a growing trend of wealthy local executives interested in buying newspapers from chains that have seen their stocks fall as readers and advertisers migrate to the Internet. The former chairman of General Electric, John F. Welch Jr., has expressed interest in acquiring The Boston Globe. The New York Times Company, which owns The Globe, has said the paper is not for sale.
Many journalists have held out hope that local ownership might put an end to the heavy cost-cutting they have been forced to do lately. But if Philadelphia is any indication, that may not be the case. A group of local business executives recently acquired The Philadelphia Inquirer and, after just a few months, announced an accelerated decline in advertising and possibly significant job cuts.
Journalism experts caution there are perils, along with potential benefits, of having local owners. “One question of the new model of local ownership is, How deeply and how broadly will they live the principle of independence?” asked Tom Rosenstiel, director of the Project for Excellence in Journalism.
That may be even more difficult for someone coming from Hollywood, which is a focus of The Los Angeles Times’s coverage. The rules for covering Hollywood are “not the same norms of media practice as you have in political life, or other civic institutions,” Mr. Rosenstiel observed. “You don’t have transparency, you don’t have the same adversarial relationship with journalists.”
If a private equity firm were to buy The Los Angeles Times, it would probably cut costs heavily to ready the paper for a resale.
Mr. Geffen has told friends and colleagues he would be willing to accept profits far below the typical newspaper margins of more than 20 percent after operating expenses, and he would plow much of that profit into making the paper worthy of journalism’s top tier.
“At this point we’re hoping for that outcome,” said one veteran journalist in the newsroom, who like others, would not speak for attribution because of the sensitivity of the situation. He made his comment before the Broad-Burkle offer surfaced.
If the paper were valued at 10 times its current cash flow, a possible sale multiple, it would cost $2 billion.
But selling the paper separately could be prohibitively expensive for the Tribune Company, analysts and investors say, because taxes would eat up much of the proceeds. A sale of the whole company, to the Broad-Burkle team or another buyer, would be more tax-efficient.
While none of the bidders have yet seen any detailed financial data on the company, Mr. Geffen does have some indirect ties to the Tribune Company. Mellody Hobson, president of Ariel Capital, which owns about 6.2 percent of Tribune, is on the board of DreamWorks, which Mr. Geffen helped found. If a private equity group acquired the company, it might ultimately sell Mr. Geffen The Los Angeles Times.
While Mr. Geffen has made substantial fortunes in virtually every business he has gone into, it is not clear The Los Angeles Times could be the huge financial success he is used to creating.
The newspaper has been losing subscribers, another 8 percent in the last reporting period. The paper’s circulation has fallen to 776,000 daily as of Sept. 30, from a peak of 1.2 million in 1990. Fears about the future of the industry has kept stock in Tribune virtually flat this year. And, indeed, Mr. Geffen has told associates he is not expecting to get more than the return he might get on municipal bonds, or 3 percent to 4 percent, from the equity he puts up.
At the same time, he has a history of betting on talented people in a wide array of businesses. He assembled what was widely considered one of the best artist and repertoire departments at Geffen Records in the 1980s, a group responsible for signing Nirvana, Guns ’n Roses and Aerosmith.
And he was also an early investor with Edward S. Lampert, the highly successful hedge fund manager. After meeting Mr. Lampert through Richard Rainwater, then famous for investing for the Bass family, Mr. Geffen put $200 million into his fund in 1992. That investment soared over the next decade.
But not all his investments have been home runs.
His gambit in co-founding, with Steven Spielberg and Jeffrey Katzenberg, DreamWorks, a full-service Hollywood studio, met with mixed results. It was created in 1994 with divisions in movies, music, television and animation; in the end, Mr. Geffen and his colleagues had success only with the movie division, spinning off the animation unit into a public company and selling the much-reduced live action studio and library to Paramount.
Nevertheless, Mr. Geffen’s initial investment of $33.3 million grew to more than $300 million, partly because the company went public and partly from the sale of the live action and film library businesses.
A number of associates said Mr. Geffen was attracted to both the challenge of owning The Los Angeles Times and the status it offered.
“He has more money than God,” said one Hollywood executive who has known Mr. Geffen for decades, but asked not to be named. “He is bored with the movie business and he is restless. For him, this would be a new challenge. With DreamWorks, there was always the involvement of selling it. He does not have involvement right now.”
Mortimer Zuckerman, the real estate developer who has owned several publications, including The Daily News in New York, said he could understand Mr. Geffen’s fascination with papers.
"It is not as if you can’t make money, but it is not the principal criteria,” he said. “I would say that the fact that The Daily News was the only newspaper to endorse Michael Bloomberg in his first election, has been tremendously gratifying. We contributed to his victory."