How Scripps Got Rid of a Hot Potato



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(This is a story by Katharine Seelye and Lawrence Roberts that appeared in the September/October, 1985, edition of Columbia Journalism Review.)

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The acquisition of UPI by Douglas F. Ruhe and William E. Geissler in June 1982 was a puzzle to the news industry. Former 1960s political activists and adherents of Baha'i faith, the two men were little known outside of Nashville, where they owned a firm called Focus Communications whose chief asset was a struggling television station in Joliet, Illinois. They were not exactly the sort of people the E.W. Scripps Company, UPI's corporate parent, had been looking for to taking the financially ailing news service under their wing.

But UPI was losing approximately $1 million a month, and while U.S. news organizations were generally unhappy about the prospect of UPI's going under, they had proved unwilling to pay the cost of keeping it afloat. Scripps had simply reached the end of its rope. "By the time Ruhe and Geissler came along," says a former UPI executive, "UPI had become such a hot potato that they were ready to toss it to anyone who would grab it."

UPI's forerunner, United Press, was founded in 1907 by Edward Wyllis Scripps, a freewheeling midwestern publisher, for the express purpose of making a wire service available to all. In defiance of the powerful Associated Press cartel, an exclusive club that could blackball dailies that competed with its members, Scripps offered his service to anyone who could pay for it.

The AP was and remains a publishers' cooperative that simply bills its members for expenses. UP, by contrast, had clients, not members , and had to dig into its own pocket to cover any losses. And because UP was much smaller, it had to undersell it rival to stay in the game.

Both wire services flourished through World War II. Then came an event that, according to Roger Tatarian, who retired in 1972 as editor of UPI, "changed the entire nature of news-agency competition." In 1945, in response to an antitrust suit filed by the Justice Department, the U.S. Supreme Court ruled that AP could not deny its services to anyone. With every paper now able to get AP, UP had to fight harder for clients.

Still, for more than 15 years, UP continued to show a profit. At its peak in the early 1960s, by which time it had merged with Hearst's faltering International News Service to become UPI, the agency had nearly 6,000 domestic clients, including more than 1,000 newspapers. But faced with a steady decline in the number of U.S. dailies, and with stiff competition from new, supplemental news services, UPI began losing both money and clients. By the time Ruhe and Geissler took over, the agency had only about 4,200 domestic clients, fewer than 800 of which were newspapers. AP, by contrast, had about 7,000 domestic clients, including nearly 1,200 newspapers.

UPI's difficulties can be charged in part to its parent company. E.W. Scripps was a profitable conglomerate whose assets included 14 metropolitan dailies, but ran UPI with a legendary cheapness when it came to salaries, supplies and facilities. In the 1970s, although Scripps helped UPI out with lines of credit, it generally reacted to client losses by demanding cuts in staffing, which in turn, resulted in more client losses.

Furthermore, says one former executive, "they never encouraged new concepts. After a while you just didn't try." One glaring example of shortsightedness had to do with the plan by both wire services in the late 1970s to switch from expensive phone lines to satellites for transmitting news to customers. This required outfitting each client with a receiving dish. AP supplied the dishes free, but Scripps refused to put the necessary $20 million up front. "With that $20 million you could have saved $6 million in one year," the former executive said. "Instead, we went with a half-assed program of having the client buy the dish. So you ended up with some clients in an area on satellite and others on land lines. We ended up with two delivery systems that were costing us a fortune."

In 1978, after much agonizing, the Scripps board of directors voted to re-examine the company's ownership of UPI. "We didn't specify sale as the mandated solution," says board chairman Charles E. Scripps, a grandson of the founder. "But we did specify that something be done."

The company looked first to the journalistic community. Scripps executives figured that support from a consortium of three dozen news organizations could keep UPI in business, and it won pledges from about two-thirds of the necessary number. But some of the biggest organizations, The New York Times Company, The Times-Mirror Company and Knight-Ridder Newspapers among them, balked, saying they could not persuade their stockholders to invest in an ailing enterprise.

Though disappointed, Scripps didn't give up. According to Roderick W. Beaton, who was president of UPI for 10 years until his retirement in 1982, the company "went to a group of the biggest publishers in the country and had a private meeting with them in New York and put it to them cold turkey: 'What do you fellas want to do about it?' And no one raised their hand. No one said anything . . ."

"If I were a Scripps," said Beaton (who was not at the meeting), "I'd have to say to myself, Why am I the sucker? Why am I the mule being kicked?"

In 1980, hoping to find a buyer with a sound plan for keeping the agency operating, Scripps hired First Boston Corporation as its financial agent and put UPI on the block. Enter Ruhe and Geissler, who had only just managed to put their Joliet TV station on the air. "UPI fit our plans for the future," says Ruhe. "We saw the possibility of creating (with UPI) a mini-network of TV stations and some small broadcast and news organizations." Admitting that they knew nothing about the wire-service business, he says, "We thought it was worth a stab."

So in 1981, Ruhe called up First Boston. But the firm would give him no information. "They said they were talking only to large companies," he recalls.

There were other, more legitimate suitors. Reuters, for one, was taking a serious look at UPI, tramping around to its bureaus and studying its news coverage. But in 1981, after a year of investigation, Reuters backed off.

With heavy losses accumulating and with no end in sight, Scripps executives grew more anxious. Adding to the company's concern was an awareness that time was running out on the Scripps Trust, owner of more than 80 percent of the stock of the E.W. Scripps Company. E.W. Scripps had set up the trust principally for the benefit of his four oldest grandchildren, all of whom are now over 60 years old. "The life of the trust is based on the four of us," Charles Scripps explains, "and when the last one of us is gone, the assets would be distributed among the heirs." If the company still owned UPI, and heirs decided to fold the service, Scripps might have to shell out as much as $60 million in severance pay and other shutdown costs. There was also some concern, according to insiders, that UPI's heavy losses could leave the Scripps trustees open to legal action by the heirs.

Meanwhile, Ruhe and Geissler, undaunted by the brush-off from First Boston, were moving in on their objective. "I had tried calling investment bankers, lawyers," Ruhe says. "I tried to get them to solicit information about UPI for 'unnamed clients' of theirs that's a very commonplace. In fact, it's done every day, but First Boston said no."

Ruhe then took advantage of a happy coincidence. Geissler's wife, Judith, had been married to a man named Porter Bibb, who was now head of the communications and high-technology group in the investment banking division of Bankers Trust in New York. Ruhe and Geissler hired Bankers Trust for $100,000 to represent them in the potential acquisition of UPI; Bibb then obtained First Boston's packet of information, evaluated it and served as Ruhe and Geissler's financial adviser. In February 1982, Ruhe sent a two-paragraph Mailgram to Charles Scripps, in which he proposed a simple cost-cutting plan: he would trim staff, complete the conversion from phone lines to satellites and institute "aggressive marketing." He offered no cash.

According to one insider, the Mailgram arrived just after Reuters had withdrawn from negotiations. "I sent it on a Friday," said Ruhe," and they called me on Monday. They said, 'We take this offer very seriously. We'd like you to come immediately to Cincinnati and talk with us to see if we can make a deal.' It moved very, very rapidly."

By this time Ruhe and Geissler had acquired some much-needed respectability in the world of print. Through Cordell Overgaard, the attorney for their television station, they had been brought together with Len R. "Rob" Small, editor and publisher and the Moline, Illinois, Daily Dispatch and heir to the family-run Small Newspaper Group. Edward W. Estlow, who recently retired as president and chief executive officer of Scripps, says that Small's being a part of the team made a big difference to him, easing his concern about its otherwise apparent lack of news expertise. Asked how thoroughly Ruhe and Geissler were investigated before the sale, Estlow says only: "There was due diligence." He adds, "We used good judgment in attempting to find responsible buyers. We had the opportunity to sell to a Swiss syndicate, with no names, a Middle Eastern group, a group from Algiers. We could have sold it to those kind of people overseas."

All parties agreed not to reveal that, in the end, Scripps actually gave the company away. The principals will not discuss the substance of the deal, but others in a position to know say it shaped up like this: Scripps paid an estimated $5 million in cash into the company treasury, most of which was earmarked for specific debts that UPI owed. It paid an additional $2.4 million into UPI's underfunded pension fund. And it threw in an estimated $900,000 in lieu of certain tax credits which, under the terms of the acquisition, the new owners would not be able to claim. Contrary to published reports, the new owners did not hand over even a symbolic one-dollar bill. Even the $100,000 that they owed Bankers Trust was to be paid by UPI. "In a sense," says Charles Scripps, "we filled up the gas tank and sold it that way. So they had some working capital."

But the new owners did not get everything they wanted. Scripps declined to transfer millions of dollars in pre-1982 tax credits that could have been used to reduce the taxes UPI would have to pay on any future profits.

For its part, Scripps hoped to be freed of any liability if UPI's creditors should force it into bankruptcy; in that event Scripps might be held responsible for paying off the agency's debts unless it could show it had made every effort to give UPI's new owners a reasonable chance of success. "It was not generosity as much as self-interest," says a source who was close to the negotiations. "The main consideration was that Scripps didn't want to get the business back in six months.

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UPI AND AP COMPARED
                       UPI                          AP
Employees
Domestic editorial        674                          1,200
Domestic photo             96                            150
Foreign editorial         200*                            34
Foreign photo               0                            150

News Bureaus Domestic 135 136 Foreign 52 83
Annual Budget $100,000,000# $206,000,000
Domestic clients/members Newspaper 729 1,251 Broadcast 4,340 5,700
Pulitzer Prizes 10 34

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*approximate
#estimated

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