Sunday, February 1, 2009

Hidden History of Mort Zuckerman's `U.S. News & World Report'--Part 2

(The following article first appeared in the April 14, 1993 issue of the now-defunct Lower East Side alternative weekly, Downtown. See below for Part 1)

By early 1984, the employee-owned U.S. News & World Report Inc. had evolved into a company whose major assets were its magazine publishing operation, its Downtown Washington, D.C. real estate holdings, its radio programming service business and its Publisher Services International typesetting subsidiary. From its sale of U.S. News & World Report ad space at about $44,000 per full-page in each issue, around $94 million was earned by the magazine in 1983. Another $47 million was taken in during the early 1980s from the sale of the magazine to around two million subscribers. When founded by David Lawrence in 1948, U.S. News & World Report initially had only about 380,000 subscribers. In the early 1980s, though, only about 78,000 copies of its magazine were sold by U.S. News & World Report Inc. on U.S. newsstands, each week.

From the U.S. News & World Report Inc.’s Publishers Services International typesetting subsidiary—which assembled Newsweek, Business Week and other publications, as well as U.S. News & World Report--$18 million was earned in 1983. In addition, in 1983 U.S. News & World Report Inc.’s four acres of Washington, D.C. land surrounding its magazine’s building and its 50 percent ownership of a Downtown Washington, D.C. real estate development project were estimated to be worth about $45 million. The pretax profits of U.S. News & World Report Inc. in the early 1980s equaled about $4 million per year.

The real estate business partner in Washington, D.C. of the then-employee-owned U.S. News & World Report Inc. since 1981 had been the Boston Properties real estate development firm of the then-multi-millionaire owner of The Atlantic monthly magazine—Mort Zuckerman. In 1981, Zuckerman had announced that on U.S. News & World Report Inc.’s Washington, D.C. land his Boston Properties was going to “construct a new 160,000 square-foot headquarters building for the magazine, a 233-suite luxury hotel and a hotel annex with more rooms, a 300,000 square-foot office building, and two residential complexes totaling 200,000 square feet,” according to the March 16, 1984 issue of The New York Times.

Coincidentally, in May 1984 the seven-member corporate board that represented the employees who owned U.S. News & World Report Inc. decided to sell their magazine and their other assets to their real estate business partner, Zuckerman, for about $168 million. The deal was subsequently almost unanimously approved by the U.S. News & World Report Inc. employees.

To gain control of U.S. News & World Report Inc.’s magazine, real estate properties, typesetting subsidiary and radio programming service, Zuckerman agreed to pay its employee-owners about $3,000 per share of stock for stock that had previously been valued at only $625 per share. He also agreed to pay $25 million to purchase an additional 2,400 shares of stock that were owned by the seven individual corporate board members of the previously employee-owned magazine company who apparently arranged the deal with Zuckerman. (end of part 2)

(Downtown 4/14/93)

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