By Michael Miner
Defender of the Faith
Why do you think your grandfather would be on your side in this fight? I asked Myiti Sengstacke.
“Simply because before my grandfather passed away, when he was on his deathbed, I promised him I would continue the papers,” she said. “I said I would make sure they remained in the hands of the family. He couldn’t speak. But he squeezed my hand tighter and shook his head in approval, and I knew that was what he wanted me to do.”
Sengstacke intends to be the next publisher of the Chicago Defender, which her great-granduncle Robert Abbott founded 93 years ago and her grandfather John Sengstacke ran from 1940 until he died in May 1997 at the age of 84. Robert Sengstacke, who is Myiti’s father and John’s son, isn’t so sure John Sengstacke could ever have approved of anybody but John Sengstacke running the Defender. But he doesn’t mind if Myiti wants to think differently.
Myiti’s deathbed promise bolsters her moral claim to Sengstacke Enterprises, if not her shaky legal claim. John Sengstacke spoke his own wishes in a trust created years before his death. The trust, which controls his 70 percent of Sengstacke Enterprises, leaves Robert out and consigns Myiti to a humble place as one of several beneficiaries.
“I was the sole beneficiary,” Robert Sengstacke recalled this week, in a conversation outside the Daley Center courtroom where the fate of the Defender was being argued. But he agreed with his father that the trust should be rewritten for tax reasons, skipping his generation. When the tax code was changed, what had been shrewd became disastrous. “The lawyers tried to get dad to change his trust. He’d listen–but he didn’t.”
Because of the generation skipping, some $3.5 million in estate taxes must now be paid from John Sengstacke’s trust, which controls the Defender and three other newspapers but is virtually without liquid assets. When he died, liquidation of Sengstacke Enterprises seemed inevitable. But last February Myiti Sengstacke and her three brothers exercised the beneficiaries’ one power over the estate, removing Northern Trust as its trustee before Northern could sell off the papers. Thus they postponed the inevitable, and Myiti Sengstacke still hopes to avert it.
The grandchildren’s action paralyzed John Sengstacke’s estate, there being no one with the authority to reorganize, recapitalize, or sell it. As Myiti Sengstacke searched in vain for a successor trustee that would support her campaign to take over Sengstacke Enterprises, interest on the unpaid taxes mounted and a deadline approached that could force a fire sale of the trust’s assets. This week circuit judge Thomas Hett summoned the various parties to court to produce a short list, and from it named an interim trustee of his own.
“My father did many very great things,” Robert Sengstacke was saying outside the courtroom. “Most of that was in the 40s and 50s.” Now he just hopes to be able to cash in his 15 shares in Sengstacke Enterprises for the $900,000 he thinks they’re worth, and if his daughter wants to go save the Defender he wishes her well. “Not that I don’t have any confidence in my children,” he told me, “but I have 40 years’ experience in this business, and I know what it will take to turn the Defender around. The Defender was mismanaged and neglected the last 35 years.”
A professional photographer, Robert Sengstacke said that over the years he wore many hats at the Defender, and for six years in the 70s even ran the Tri-State Defender, the Sengstacke Enterprises weekly in Memphis, raising its circulation from 1,000 to 15,000. But his father never stepped aside. “My father did not see anyone capable of operating the Defender but himself,” he told me. “Over the years it was a constant struggle. It took eight years to get him to install the first computer system at the Defender. The Michigan Chronicle [the family’s weekly in Detroit] had been computerized for 20 years. It was clearly the way to go.”
He went on, “If I have any regrets, it’s not so much not running the Defender but not recognizing the kind of man dad was and taking off sooner.”
Beyond the double doors, Judge Hett’s courtroom swarmed with lawyers. There were lawyers separately representing the adult beneficiaries, the minor beneficiaries, and the unborn beneficiaries. One lawyer spoke for Northern Trust, another for the state of Illinois, a third for John Sengstacke’s brother Fred, who is temporarily in charge of the Defender and runs Chicago Defender Charities, which is waiting to receive 160 acres of farmland in southwest Michigan that were left to it in the trust. John Sengstacke’s friend Thelma Montgomery, another beneficiary of the trust, was represented by the formidable Eugene Pincham. And in the back of the courtroom, listening silently, was an attorney for investment banker Kurt Cherry, who wants the Defender for himself.
“John Sengstacke knew what he was doing. I’m sure he’s rolling over in his grave thinking, ‘This couldn’t have happened!'” says Cherry. “Myiti Sengstacke has a clear desire to play the newspaper game, but the reality of the situation is that that’s not what the old man provided for. The trust document says, ‘I don’t want these grandchildren invading the principle of the estate until they’re 35. Then they can get cash. Until then they get income.’ The obligation of the fiduciary is to create income.”
Cherry runs PublicMediaWorks, a company he created to buy newspapers. He was vastly outbid by Hollinger a couple of years ago for Gary’s Post-Tribune. Now he’s offering $12.5 million for Sengstacke Enterprises–though there’s been no trustee in place to accept it. “It’s a great business opportunity,” he told me. “Look, there is a niche for these kinds of publications. But is it risky? Very much so. To execute this kind of strategy you need high-quality managers.”
Cherry said he’s already found a publisher for the Defender: David Milliner, a PR and marketing executive who was once John Sengstacke’s assistant. Cherry refused to name the “newspaper guys” on his management team but said he’s offering them a “historic opportunity.” He explained, “They’ve spent their lives making big money for important chains. They see this as their opportunity to take that skill set and apply it against this historic franchise and restore it to a position of standing with guys like you. The paper, you’ll have to agree with me, is not an appealing product. It’s not an informative product. It’s just a masthead. That’s what we’re buying–a trademark.”
Which is largely true. The heyday of the Defender–when it circulated through the cotton belt like samizdat, brought south by Pullman porters and north again by migrants responding to the promise of dignity and opportunity–is decades past. Circulation that was once 250,000 is now 20,000. Its pages, perfunctorily written and carelessly edited, ache with fatigue. The Michigan Chronicle is the company’s cash cow these days, and then there are the papers in Memphis and Pittsburgh. The Defender, a daily since 1956, is exhausted.
“This is not a very kind business,” said Cherry. “You have a lot of competition for people’s eyeballs, and this paper has been undermanaged for many years.” He felt he needed to talk frankly to the Sengstacke family. “I said, ‘Myiti, listen. We’re businesspeople. It takes a lot to raise the kind of money we’re raising. The people providing us with this money–a venture-capital firm–have a high bar on who they give this money to. They’ll never go for a deal where you’re the publisher.
“‘But Myiti, if you really want to be who you say you want to be, let’s talk about what we can help you do to get there. We have friends in the industry. We can get you training at other papers so you get the lay of the land. Then you can come back and begin rotating through all the departments of the going-forward Sengstacke Enterprises, so at the end of the day you’d have a skill set comparable to anybody in the business. And when you’re my age–I’m 42–we can pass the medal on to you.’
“And that was not what she wanted to hear.”
Myiti Sengstacke, who just turned 27, attended but hasn’t graduated from Virginia’s Hampton College. It’s the alma mater of both Robert Abbott and John Sengstacke, who–it must be said–was 27 himself when he took over the Defender from his late uncle. She worked a while in the business office of the Michigan Chronicle, but recognizing the peril to the family business when her grandfather died, “I came to Chicago and never looked back.” Now she’s on a “serious quest…trying to keep the paper from getting in the hands of the wrong group of people, be they black or be they white, who might have the wrong vision for it.” Her vision is to maintain the Defender as an “advocate for the community” and not for “our own selfish ambitions,” and to “bring it into the 21st century, which is much needed.”
Kurt Cherry and his people rubbed her the wrong way. “From the first meeting I knew I didn’t want to work with them. They were very pushy, almost haughty. Instead of talking with us, it was as if they were talking to us about what they wanted to do. They didn’t show me who their management team was. They didn’t prove they had financial backing. They have yet to prove they can deliver. They want to buy the company outright. I’m looking for an investor.”
She’s found one. Don Barden–a big man in Detroit and Gary, where he owns the Majestic Star riverboat casino–is worth about $100 million, the Detroit News estimated last year. He made his fortune by bidding for, winning, and selling a cable-TV franchise in Detroit. Last year he teamed up with Michael Jackson in a failed crusade to persuade Detroit voters to overrule their mayor and pass a proposition that would have required him to permit a black already in the gaming business–in other words, himself–to build one of three casinos going up in that city.
Do you want gambling money running your family’s papers? I asked Myiti Sengstacke.
“A lot of people look at that as a negative,” she said. “But that doesn’t mean it’s dirty money. If anything, it’s a positive, because for you to own a casino you’re checked thoroughly by the IRS. They know everything about you, even what your grandmother does for a living. You have to be clean.”
She told me that when her grandfather died, prospective buyers descended on Northern Trust. Barden was part of that crowd. “When I removed Northern Trust from trustee, everyone else was upset about it,” she said. “But instead of getting angry and thinking he’d lost an opportunity, he called and said, ‘Congratulations. That’s a good move.'” Since she thought it was too, she admired him for his perspicacity and for the respect he showed her. Now she goes so far as to claim that “in some ways he’s close to an angel investor. It’s going to remain Sengstacke Enterprises.” Barden, she said, will be a silent partner in Chicago.
And in Detroit? I asked. That’s where he lives, operates, and has taken on the mayor. Surely he wants his hands on the Michigan Chronicle. “Yeah, everybody thinks that,” Sengstacke said. “I’d rather have someone who wants one paper than someone who wants to take all four away.”
In December Crain’s Chicago Business described a recapitalization plan set up by Barden in which $4.5 million would be borrowed with the Michigan Chronicle as collateral, new shares of Sengstacke Enterprises would be issued to Myiti Sengstacke and her three brothers, and outstanding shares in other hands would be liquidated. Myiti and her brothers would wind up with 49 percent of the company. “The question you have to ask as fiduciary [trustee] is, should I be anywhere near that deal?” Kurt Cherry told me. “In a highly leveraged transaction, the risk of default or bankruptcy is the issue.” One bank, South Chicago, which Myiti Sengstacke was counting on to become trustee, ultimately backed out because it didn’t want the risk.
Sengstacke insists that Crain’s description of the deal wasn’t entirely accurate. Regardless, without a trustee no deal at all was doable, while catastrophe was becoming a strong possibility. Late last year Northern Trust warned Judge Hett in an emergency motion that the trust’s tax liabilities had to be dealt with fast. A hardship extension postponed the first of ten payments on that debt until February 28, 1999, but at a cost–“an additional six figure interest charge,” Northern Trust told the court. “Even if additional hardship extensions were granted, the compounding interest costs could, in the very near term, exhaust the trust assets.”
Even worse, if there were no extension and the February 28 deadline were missed, Northern Trust warned, “the entire death tax liability will immediately become due, with potential ruinous results to the Sengstacke Trust.”
Possibly a little calmer than she should be, Myiti Sengstacke told me she’s “pretty sure” she can get another extension. “As soon as we do this recapitalization we’re going to pay off the taxes in whole, so the interest is not going to accumulate too much,” she said. Her serene confidence that everything will work out is both an indispensable asset and an unsettling sign of youth.
A couple of weeks ago I reported an unusual new story-swapping arrangement between the Sun-Times and the Daily Herald. In another noteworthy initiative, the Sun-Times recently began picking up local stories from the Medill News Service. And for some time it’s published a Sunday business-section package provided by the Bloomberg news service; in response to this coup, the Tribune dropped the valuable Bloomberg wire entirely.
In the eyes of the Chicago Newspaper Guild, these moves are all ways in which a unionized paper is aggressively reducing its dependency on its own staff. Which is why the guild is filing grievances over them, and why in mid-January the Sun-Times’s guild chair, Daniel Lehmann, posted a memo at work that said that the new Medill and Daily Herald initiatives “raise substantial questions” about the future quality and competitiveness of the Sun-Times and about a “potential threat to job security under the Guild contract.”
Lehmann went on, “Management said the Medill News Service would be used to replace the soon-to-fold City News Bureau, but not as a tip sheet, rather as a wire service for use just like the Associated Press. The arrangement with the Daily Herald is stranger: It calls for the papers to give each other a number of stories to be reduced to shorts or briefs by the staff of the receiving paper and run in the next day’s editions.
“Coupled with recent, repeated use of articles by exempts, plus the Bloomberg News ‘branding’ (a euphemism for outsourcing) of the Sunday business section, it all adds up to an apparent assault on the Guild’s jurisdiction at the paper, which means our jobs–your job–if not now, then later.”
Editor in chief Nigel Wade promptly responded. “None of you who work so hard every day for this paper deserves to be misled and needlessly alarmed as you have been by the union in its latest posting,” he began. “I would like to sweep up some of the mess.”
Wade asserted that the “worthy” Medill News Service–which is written by students–provides copy “fit to go straight into the paper” after routine editing, “compared with the poor standards to which some City News Bureau copy has sunk.” (This memo quickly made its way to the City News Bureau, whose infuriated staff hold the Sun-Times primarily responsible for the decision to close the 108-year-old news service on March 1.) As for the Daily Herald swap, “any arrangement which benefits both the Herald and the Sun-Times is bound to discomfort our biggest rival and thus sharpen our competitive edge. I trust you will reach your own conclusion about the union’s doomsaying.
“No job is threatened by these new arrangements, or by the introduction of a Bloomberg business news feature on Sundays. How does improving the editorial range and quality of the paper do anything but strengthen us all? This will be a hugely important year for the Sun-Times. It will see a new design, new content and new presses. Nothing is to be gained from posting alarmist, muddled utterances which undermine subscriber and advertiser confidence in the product we all work so hard to put out. That, with costly, time-wasting grievance-raising, is the true threat to jobs.”
It was a robust exchange of views in a bracing work environment.
A farewell party emceed by John Callaway will see out the City News Bureau on Friday, February 26, from 6 to 9 PM at the Signature Room at the 95th in the John Hancock Center. The theme is “We’re going out on top.” Advance reservations are $40; call the hot line at 773-929-6072.
Art accompanying story in printed newspaper (not available in this archive): Myiti Sengstacke.