For more than half a century, employees at Journal Communications Inc. enjoyed a perk that could make them fabulously rich upon retirement – their shares of “Journal stock,” as it was popularly called.
Until 2003, the company that owns the Milwaukee Journal Sentinel and the WTMJ broadcasting empire was privately held, largely by a trust in which company employees could purchase shares. It was a veritable gold mine: The value of those shares had never once declined since the ownership plan was created in the 1930s.
With the company’s encouragement, employees took out huge loans in order to buy shares, secure in the knowledge that the increase in value and the regular dividends would quickly offset interest on the debt. Career employees looked forward to quitting at 55 or older with a stake worth hundreds of thousands of dollars, if not more – enough to fund a handsome retirement.
All that changed when Journal Communications went public and all shares were converted to real stock. The company’s initial public offering sold shares for about $15 on the New York Stock Exchange, and for a few months, the price rose, hitting just over $20 in early 2004. Since then, though, the stock has steadily declined, bottoming out at $1.51 a share in November before a slight rebound to the $2 range.
While the global stock market meltdown has been painful for everyone, Journal stock was plummeting long before this. Its huge loss – 90 percent of value – far surpasses what most stockholders face, even those of other media properties. The impact has been devastating.
“I know of several people who’ve basically had their retirement funds wiped out,” says Paul Kritzer, former Journal Communications corporate secretary.
Kritzer counts 200 employees and retirees whose average holdings are about 35,000 shares. Since the company went public, that group has lost as much as $80 million – over $400,000 per employee.
The number of employees who still have some company stock is “probably in excess of several thousand,” estimates Doug Armstrong, a former Journal film critic and JS banking reporter.
They can still collect Social Security and the modest monthly pension the company offered. “But the big daddy was always Journal stock,” says Armstrong. “People were counting on it to make their retirement rich and unworrisome.”
The lucky employees and retirees got out quickly, accepting the company’s tender offers once it went public. That’s what business reporter Rick Romell did. “I didn’t want to be in that situation in a publicly traded company,” he says.
It was Journal Communications Chief Executive Steve Smith – the first CEO who didn’t come from the company’s print side – who oversaw the company’s transformation, and who hoped to thereby generate cash to expand the company by purchasing other broadcast entities. But the stock’s collapse has led many stockholders to question that strategy. “The company has budgeted more than $30 million this year for [broadcast and print] acquisitions.” Armstrong notes. “Anytime they have bought anything, the market has punished them by reducing the stock price.”
Backed by retired JS Publisher Keith Spore, Armstrong has teamed with Kritzer and John Torinus, a former Sentinel business editor who is now chairman of Serigraph Inc. and writes a Sunday column for the JS business section. The trio has formed an alternate director slate to challenge the company’s hand-picked directors up for re-election at the annual meeting this spring. Such proxy fights often fail, but Kritzer believes his group has a key advantage.
“Employees and retirees have 50 percent of the voting power of the company,” he notes. A shareholder resolution that Armstrong brought last year called on the board to raise dividends instead of buying back stock or making acquisitions, and it got support from 37 percent of the shares. Kritzer believes his group’s agenda – trimming debt, conserving cash, halting acquisitions – could gain the support of a majority.
In a press release, Smith has contended the stock’s current price is understated, suggesting it should rebound. Armstrong thinks this is much less likely without a move away from the company’s strategy of buying up broadcast properties.
The low stock price, he adds, presents a particular hazard: “Someone can come in with a fairly low offer and try to entice shareholders into selling out for very little money.” Indeed, New York money manager Mario Gabelli has taken about a 10 percent stake in the company. So far, he’s been silent on his intent.
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There has been a rash of early deaths among JS veterans over the last five years. David Doege – a longtime reporter who took a buyout in late 2007, then moved on to the Business Journal – died this past fall of a heart attack, while photographer Lynn Howell succumbed to cancer. They were just the latest casualties, following respected editor Bruce Gill, restaurant critic Dennis Getto, reporter Leonard Sykes and photographer Dale Guldan – all men in their 50s. While there’s no connection between the deaths, they add more gloom to the mood at Fourth and State.
