The former owners of the Reader explained when they sold this paper last month that it was facing financial challenges they felt too old and spent to tackle. One of the most exhausting of those challenges was personal: the owners who spoke for the Reader were being sued by a founder they’d stripped of operational authority some 20 years earlier. This was Tom Rehwaldt, a frequent minority of one at board meetings of Chicago Reader, Inc., who nevertheless owned 19.1 percent of the stock.
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The suit contended that the Reader‘s net income, “typically approximately 30% of revenues” in the late 80s, had declined to a small operating loss in 2006, while profits of the Washington Free Weekly, Inc., which published the Washington City Paper and was controlled by the same officers and investors, dropped from about 15 percent of revenues to 6.7 percent. (Because classified revenues were never as important to City Paper as they were to the Reader, the Washington paper was less affected by the free classifieds introduced by Craigslist.)
Rehwaldt’s new suit accused the controlling partners of dealing irresponsibly with the new circumstances: “The Individual Defendants have stated their preference to sell the Reader to an investor with whom they have personal financial relationships (the Preferred Investor) and have shared with that investor a low-ball purchase offer from another potential buyer, thus providing to the Preferred Investor confidential information which could be used to reduce any further purchase offer made by the Preferred Investor.”
The Reader‘s other owners were outraged and anguished by Rehwaldt’s charges. They call absurd the idea that they’d depress the value of their own stock to punish him. Every former owner I’ve talked to dismisses the suit as, in the words of one, “completely bogus.” (None of the owners would speak for attribution, primarily to avoid more litigation.)
A week before Rehwaldt filed his suit, the Reader owners heard for the first time from Ben Eason, CEO of Creative Loafing in Tampa, Florida. The other owners barely knew Eason from the man in the moon, but Rehwaldt had served a few years on an advisory board Eason put together in the mid-90s. More to the point, perhaps, investment broker Bryan Crino of Skyway Capital Partners in Tampa, who would help structure the Reader deal and himself owns a small share of Creative Loafing, is a transplanted Chicagoan who was friendly with Rehwaldt. “From Rehwaldt talking to Bryan I knew there was a little bit of crying the blues there,” Eason told me. “And Crino said it’s time to make a call.”
Despite several invitations, Rehwaldt failed to make himself available to me for an interview. The other former owners acknowledge that he was by no means always wrong about the Reader; for instance, when Craigslist decimated the classifieds section, the managing partners decided to go with the flow and give away ads for owner-occupied two-flats and three-flats, which had long been a workhorse of the section. Rehwaldt thought this was nuts: he could see from his local weekly, the Evanston Review, that there were plenty of landlords willing to pay to advertise. Jane Levine did a study that showed he was right, and the Reader began charging again.
If those things are accomplished, they’ll be accomplished by Ben Eason.
