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Wednesday, June 21, 2006

A Behind-the-Scenes Adviser Aids Paper Heirs

By RICHARD SIKLOS
Published: June 22, 2006
New York Times

In the melee that erupted last week between the Chandler family and the Tribune Company, it has been hard to tell who is driving the Chandler caravan. After all, the Chandlers, who owned The Los Angeles Times for more than a century, are a diffuse clan numbering some 170 members, many of whom have never met one another.

One of the major players behind the scenes is Thomas Unterman. He is neither a member of the family nor a trustee overseeing its billions, nor is he one of the trust's appointees on the Tribune board. Rather, Mr. Unterman is a lawyer turned media executive turned venture capitalist who has worked for the family for years. He has acquired a reputation as a financial and legal wizard for helping put together a series of complex and sometimes contentious deals the family and the former Times Mirror company did in the 1990's.

All of those transactions were intended to minimize the payment of taxes by the family and company. Indeed, in the specialized realm of tax-avoidance aficionados, "he's a living legend — he's a Mount Rushmore kind of guy," said Robert Willens, an accounting expert at Lehman Brothers.

Now, Mr. Unterman, who is 61 and lives in Los Angeles, is back in the picture, fighting for the family's interests. He is an adviser to two family trusts that are represented by seven trustees, three of whom sit on the Tribune board. The Chandler trusts, which own 12 percent of Tribune, are at loggerheads with the company over the value of two partnerships Mr. Unterman created with Times Mirror in the 1990's and over who gets stuck with a potential tax bill from unwinding those partnerships.

And in a stunning display of seller's remorse, the Chandlers last week branded the Times Mirror merger a failure and publicly demanded that Tribune spin off its TV business or put itself up for sale.

As Times Mirror's chief financial officer in 1999, it was Mr. Unterman who acted as the Chandlers' emissary to Tribune in secret talks that led to the company's acquisition by the Chicago company. Mr. Unterman, who was paid more than $8 million in bonuses for his work on the sale of Times Mirror and three other deals in the 1990's, resigned shortly after the sale to Tribune was announced, and began running the $500 million venture capital arm of the Tribune-Chandler partnerships, which are known as TMCT I and TMCT II.

He was also the architect of Times Mirror's sale of two publishing businesses in 1998, deals that last year resulted in Tribune being stung with a tax ruling for nearly $1 billion, now being appealed. While Tribune executives have said they knew they were taking on a potential liability when they acquired Times Mirror, they did not anticipate such a large hit.

Behind the scenes, Mr. Unterman has been an advocate of the Chandlers' hard line in talks with Tribune and has for months been personally handling the negotiations with the company over dissolving the TMCT partnerships, people involved said.

Mr. Unterman has been adamant, along with the Chandler trustees, that the dispute with Tribune is not about unwinding the partnerships in a way favorable to the Chandlers. Rather, they argue, the real issue is Tribune's lack of a growth strategy at a time of uncertainty in the media industry.

Among other things, Mr. Unterman has been critical of the company's efforts to develop Internet businesses around its powerful local news franchises in cities like Los Angeles, Chicago, Hartford and Baltimore.

The Tribune board and its chief executive, Dennis J. FitzSimons, have rejected the Chandlers' demands and have accused the Chandlers of putting their own interests ahead of those of the rest of Tribune's shareholders. Specifically, the Chandlers are opposed to the company's previously announced plan to buy back more than $2 billion worth of its stock next Monday, calling it "hasty and ill-informed."

And a more drastic revamping of Tribune — like spinning off its TV business, which the company said it has studied for months — is not feasible for tax reasons until the TMCT partnerships are unwound.

The Chandlers would lose their three seats on the board if they tendered more than 15 percent of their shares into the buyback. The Chandlers asked the board several weeks ago if it would change its bylaws to allow them to sell more than 15 percent into the sale without losing the seats, but the board said no.

A person close to the Chandlers, who asked not to be identified because the family considers the matter confidential, said Tribune's unwillingness to let the Chandlers keep their board seats was not a factor in the trusts' decision to oppose the buyback and not sell shares.

Mr. Unterman, who declined to be interviewed for this article, is well known in legal, venture capital, media and civic circles in Los Angeles. People who know him depicted Mr. Unterman as a good listener and negotiator, but aggressive and unflinching once his mind is made up.

"He is Solomonesque," said Willem Mesdag, a former Goldman Sachs banker who worked as an adviser to Times Mirror and is president of the board of trustees of the Los Angeles Museum of Contemporary Art, where Mr. Unterman is treasurer.

"I see him as a seeker of the right solution, which could make some parties unhappy," Mr. Mesdag said. "I don't see him as a compromiser — I think he's quite comfortable with the right solution and a disgruntled party."

One Times Mirror director at the time of the company's sale who was not affiliated with the Chandlers described Mr. Unterman as calm, rational and personable. Another longtime Times Mirror director, Alfred E. Osborne, called him "a very savvy and creative financial executive who could structure transactions superbly."

Mr. Unterman's close ties to the Chandlers gained attention when it emerged that he had approached the Tribune company about a deal without the knowledge of his ostensible boss at the time, Times Mirror's chief executive, Mark Willes.

"I think there was a kind of evil genius issue raised by some commentators" after the episode, said Henry M. Fields, a lawyer with Morrison & Foerster, the law firm where Mr. Unterman worked before joining Times Mirror as its general counsel in 1992. "He's no Svengali. I see him as an absolutely classic corporate lawyer and advocate for his clients who tries to do his best."

Mr. Unterman is something of a Chicagoan himself. He was born in Rhode Island but raised in Chicago, and attended law school at the University of Chicago. The venture capital fund he runs, Rustic Canyon — in which Tribune has a 20 percent economic interest — has lost money since its inception in 1999, as have other funds founded during the dot.com bubble.

Personal animosity does not appear to be a factor in the rift between the Chandlers and Tribune. But the $1 billion tax ruling on the deal Mr. Unterman devised in 1998 has made Tribune executives wary of agreeing to any proposals he puts forward that do not include the Chandlers indemnifying Tribune from more unexpected tax rulings.

"The company has no intention of assuming any additional tax liability," Mr. FitzSimons said — echoing the very position Mr. Unterman has helped the Chandlers maintain for years.

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