An obituary the
newspaper ran after his 1999 death included warm comments from
former Sens. Jim Exon and Bob Kerrey and from World -Herald
Publisher John Gottschalk.
However, in the time
between his retirement and when he died, Beeder spent time trying
to figure out if, and why, his former employer might have cheated
him out of hundreds of thousands of dollars when he cashed in his
What he found out,
and what has been released as part of the documents in a federal
lawsuit that was settled out of court July 14, three days before
it was to go to trial, opens a unique window into the hometown
newspaper worth well over $100 million with all of its holdings.
It also sheds light on how the top management of an
"employee-owned" company can face allegations of withholding
information from other employees and shareholders.
In a sense, Beeder's
lawsuit begins where a lawsuit filed by the Peter Kiewit
Foundation against the Omaha World-Herald Company leaves off. The
story starts, however, with a budding construction magnate waiting
to catch a flight.
Peter Kiewit first
discovered "outsiders" were looking to buy the World-Herald on
Oct. 12, 1962, during a flight layover in Denver. Reading the
Wall Street Journal, he noticed a story on page 4 that carried the
headline: "Samuel Newhouse Says He Is Seeking to Buy Newspaper in
of the company that bears his name, owned 19 papers at the time,
including the New Orleans Times-Picayune, which he had just
purchased for $43 million. Today, the company owns the Birmingham
News, the Cleveland Plain Dealer, the Newark Star-Ledger and 17
Since its inception
in 1885, the World, and, later, the World-Herald, have been owned
by Gilbert M. Hitchcock and his heirs, all of whom either stayed
in or maintained ties to Omaha. Newhouse's offer represented the
first real chance of the paper's control going to an out-of-state
As the legend goes,
Kiewit was troubled by the prospect, and began looking into ways
to retain local ownership. He had an ally in Martha Hitchcock,
Gilbert Hitchcock's widow, second wife and substantial
shareholder in the company, who also wanted to see control stay
Kiewit, who at the
time was a member of Northern Natural Gas's executive committee,
discussed with board members the possibility of the utility buying
the paper. The utility ultimately decided against it, but Kiewit
pursued the matter, unsuccessfully trying to finagle recent
financial statements from members of the World-Herald board.
On Oct. 19, the
World-Herald board voted 7-0 with one member abstaining to forward
Newhouse's $40.1 million offer to shareholders with a
recommendation to accept. An Oct. 31 meeting of shareholders was
scheduled to act on the board's recommendation.
had gotten copies of the paper's audited financial statements, and
polled several of his company's directors on the prospect of
buying the paper. He got the greenlight, and pitched an offer for
$185 per share, or about $40.5 million, on Oct. 30. The
World-Herald board voted 8-0 to forward the offer to shareholders,
who the next day voted to sell to Peter Kiewit Sons', Inc.
When Peter Kiewit
died in 1979, his stock was transferred to the Peter Kiewit
Foundation, which still owns 20 percent of the voting stock of the
company and has the power to veto any deal that would sell off
the paper or cause it to not be published by the Delaware-based
Omaha World-Herald Company.
At the dawn of the
80s, employees of the paper owned 22.6 percent of equity stock.
That figure jumped to 82.6 percent by July of 1985, when 279
employees owned stock. How many employees currently own stock is
unknown, but according to court documents, the company has
"hundreds of shareholders and over 4 million shares outstanding."
With over 1,000 employees at the newspaper alone, the flagship
newspaper represented barely a fourth of the company's market
value in 1997 (see sidebar). While one estimate placed a
market value of $200 million on the paper, the articles of
incorporation dictate that in the case of a sale of the
company, any amounts exceeding book value would need to be
donated to local charities.
Click Picture Above to View
All company stock is
traded in-house, and must be sold back upon retirement or when an
employee leaves the company.
According to current
and former employees with knowledge of the stock purchase program,
company stock is only offered to employees who receive the
approval of Gottschalk.
In mid-1997, Gottschalk proposed carving out the company's
flagship paper from the company's stable of operating
divisions. The company had only recently announced the
construction of the $100 million Freedom Center - its
new printing plant - and the move was widely considered as a
measure to assist in its financing.
The Peter Kiewit
Foundation sued in July 1997 to prevent the restructuring. The
foundation feared, according to court documents, the change would
detract from the company's mission to "maintain predominantly
local employee ownership of the newspaper, and to serve the
public and maintain editorial excellence" as envisioned by Peter
Kiewit when he purchased the paper in 1962.
financial interest in the company, $33 million as of June 30,
2001, according to Internal Revenue Service filings, is matched
only by its control over how the business operates. As sole
owner of a special series of voting stock, the foundation has the
power to prevent the shuttering, sale or reorganization of the
company, according to the company's articles of incorporation.
Gottschalk and Peter
Kiewit, Jr., negotiated a settlement before that suit went to
trial. According to court documents, the Omaha World-Herald
Company board ratified a proposed settlement agreement that, among
other things, altered the formula used to determine employee stock
Prior to the
settlement, stock values were based on the book value of the
company's assets. The new stock valuation formula that was
created as part of the settlement took into account the market
value of the company's non-newspaper assets. The World-Herald
Company board signed off on the settlement on Jan. 29, 1998, the
day of the annual shareholders meeting.
Beeder vs. Omaha WorId-Herald
hung up his notebook on Jan. 30, 1998.
When Beeder returned
to Omaha after his stint in Washington, he worked writing a weekly
column on social security benefits for an editor "many years his
junior," according to William Gast, an attorney representing
Beeder's widow. The assignment change and the new light duties
were major factors in Beeder's decision to retire, Gast said early
last year, after the case was filed.
As is company
policy, Beeder had to sell back his stock when he retired. He
cashed in 69,483 of his 75,800 shares at $21.35 each. The
remaining shares, one-twelfth of his total, he would cash in the
following January, and represented the one month he remained in
the company during 1998.
In 1999, when Beeder
received the check for the remainder of his stock, the 6,317
shares were sold at $31.74, or $10.39 more than the value a year
prior -- a 48.9 percent increase. It was at this point that
Beeder began a string of phone conversations and letters with
Gottschalk in an attempt to decipher the reasons behind the jump
in stock value, and if the factors that led to the increase
happened before he retired.
"If the events which
led to the adjustment occurred subsequent to my retirement,"
Beeder wrote in an April 19, 1999, letter to Gottschalk, "and were
not of a nature as might have been appropriately anticipated as
part of the Jan. 1, 1998 valuation, I should imagine that my
curiosity will be satisfied.”
however, was not satisfied before he died of cancer in 1999.
Jane Beeder, David
Beeder's widow, later sued the company, Gottschalk and James
Koley. Koley, a World-Herald Company board member and outside
counsel for the company, spoke, corresponded and otherwise
handled part of Beeder's information requests. In her lawsuit,
Beeder alleged Gottschalk knew as early as October 1997 the impact
the Kiewit settlement would have on employees' stock, but he did
not share this information with David Beeder prior to his
retirement and stock buyback.
The court file,
which is comprised of two thick gray file folders, a third
half-full folder and a box of attachments, many of which are
still seated by court orders, contains correspondence,
transcripts and two crucial documents prepared for the company
board to reflect the change in the stock valuation method.
statements you just heard...would be incorrect "
In the letter to
Gottschalk, Beeder requested access to company financial records
detailing the events that led up to the valuation change.
"I am not
suggesting, and certainly have no basis for suggesting, that the
values were established with any motivation involving the
redemption of stock from retiring employees, Beeder wrote. "Such
redemptions would be a very minor and incidental component of the
process. However, this minor result does affect me and I feel it
only fair to be able to receive information which would allow me
to conclude my review in an expeditious and amicable manner."
Koley responded to
Beeder's letter the next day, writing, "the Omaha World-Herald
Company and its legal counsel will provide you whatever
assistance you need to enable you to better understand why an
increase in the per share value of the stock of this Corporation
occurred this past year. There was not an `adjustment' in per
share value subsequent to your retirement as stated in your
Some time after Koley's letter,
Gottschalk called Beeder to discuss the matter. Like a good
reporter, Beeder recorded the phone conversation, a partial
transcript of which is included in the court file:
JG: Well, such is life. I'm, I'm not very pleased about
that. Uh, Dave I got your letter.
DB: Oh yeah.
JG: and that's really what I wanted to call about. Uh,
you asked three really important questions, uh one was about, are
increases driven by the reassignments of World-Herald assets? We
really didn't make any reassignment, uh, I'm not sure what you're
referring to there. We did, we did have, the pricing formula was
changed in April.
DB: Uh huh. (yes).
JG: to allow for market-value pricing of non-newspaper
DB: Uh huh (yes).
JG: Uh, is that what you're talking about?
DB: Well, that explains a good part of it, yeah. You say
such is life and uh I guess if I had uh hung around `till April I
would've been uh, uh in position to have a much greater stake and
uh much better in position financially, but uh.
JG: Well let me walk through this with you okay? Because
I think uh you'll be maybe somewhat maybe relieved and not
as uh put upon as it may first appear. I was maybe asking
about reassignment. Is that what you're talking about?
DB: Yes, right. Mmm hmm, right.
JG: Let me tell you what that status is. Of the uh about
uh $10.42 roughly.
JG: Gain last year uh you asked (inaudible) ... $6.00
roughly uh was for exceptional business performance of ES&S.
DB: Uh huh, yeah.
JG: It was the Venezuela project uh which might the way
we bet the entire company on that and it cost us probably $12.00
DB: Right, I know you did very well on that.
JG: (inaudible) ... that outcome was in major question.
Anyhow, about 6 of that $10 was in there uh, about three and a
half dollars was just good operating in our other, our newspapers
value kinds of things. About another dollar uh was uh in improved
World Company's operations, and about 84 cents of dividends and
truth be known the market value issue, which I think you're
referring to, the market value of non-newspaper assets actually
Exhibit 32 (see sidebar), an accounting sheet called "Fair
Market Value as of December 27, 1997," shows the $17.5 million
difference between two non-newspaper assets book and fair
market values. Most of the difference - about $14.9 million
- is the difference in valuation of Election Systems &
Software, a company of which the World-Herald Company owns 60
Click Picture Above to View
Exhibit 32 Document
The leap from the
companies' book values to fair market values - almost a 20 percent
increase - is the information David Beeder did not know, but the
lawsuit alleges he should have known, before he made the decision
to sell off his stock.
Though the board
knew the stock price would jump, they did not know how much.
Prior to 1998, ES&S had been negotiating with the Venezuelan
government to provide voting equipment and software for use in
national elections. That deal was inked in June 1998, and had a
substantial effect on the stock price.
In December 1998,
when employee stock was first figured using the new method, the
new formula that combined the book value of newspaper assets with
the market value of non-newspaper assets pegged the price of
stock at $31.74, or more than $10 higher than its value a year
In a later
deposition with Gast and Gottschalk and his attorney, Michael Cox,
Gottschalk admitted non-newspaper assets increased substantially
in value, and were major contributors to the stock price's
increase. A partial transcript of Gottschalk's deposition is also
part of the court file:
JG: Mr. Beeder has quoted me in this note as saying that
the value of non-newspaper assets actually declined a dollar
seventeen. I don't' know if I said non-newspaper assets. If I
said the certain non-newspaper assets declined or many or most or
a few or all together, I'm not sure exactly what I said. So to
answer your question, the reason I did not deny saying it is
because I don't know precisely what I said to Mr. Beeder. So I
would not deny that. On the other hand, I don't know - since I
don't know exactly what I said, I cannot confirm that this is the
WG: Okay. Let me ask it this way. If you had said it
exactly that way, word for word that we read there, that would be
incorrect, wouldn't it?
JG: If I would have said it exactly that way –
[The next question
and answer are confusing, as it appears Gottschalk is answering
his own question. Presumably, the transcript excerpt was
incorrectly copied into the court file – ed]
JG: - I think it would. I think it would ... If you said
it exactly the way it reads, that is, market value issue, which is
I think what you're referring to, the market value non-newspaper
assets actually declined one dollar seventeen, you actually
shouldn't have said that in those words, would you?
JG: If I said it, I think that's correct. I don't know
what the basis for this is and what we're doing here for
WG: Because if you had said it exactly that way, verbatim,
that would be an incorrect statement.
Michael Cox (Gottschalk's attorney): Object to the
form of the question. You can answer.
JG: If I would have said it that way, this would have
been an incorrect answer, I think it would...
JG: Again, I believe you asked me if we applied the 1998
rules to 1997 –
JG: -and then we applied it the same, in both years,
the same circumstances, would it be incorrect to say - this
is where I lost you.
WG: Per share value declined because of the change.
JG: Declined because of the change. No, I don't think it
would be right to say it declined because of the change...
WG: If you had said that, that would be incorrect, wouldn't
JG: The fact that the shareholder finally got the pricing
change in April - yeah, I don't recall saying that. This is
pretty broad, the pricing change, but I believe it would be
WG: Okay. And why is that again?
JG: Well, because I'm not sure what Mr. Beeder means by
the pricing change in April. I assume in his note he's talking
about the change in formula, I mean, the change to a formula of
fair market and book. And as we have discussed repeatedly, the
fair market value component calculated stand alone, as you
repeatedly asked this question was - was higher in year end '98
than it was in year end '97, according to exhibit 30.
WG: Okay. So - and he's writing these notes, and we're
just going by them, but if - if - if you said that exactly the way
he wrote it, that would be essentially incorrect, wouldn't it?
JG: If that's what I said, I think - yeah, it
seems to me it would be.
WG: And indeed you should not have said it if you said it
that way, should you?
JG: If I said it that way, it appears it would have been
WG: Your testimony remains the same that those statements
said exactly as we listened to on the tape are incorrect, sir?
JG: That's correct.
WG: What I just said is correct?
JG: What you just said is correct, the statements you
just heard on the tape would be incorrect.
In the approximately 20 months since the suit was filed, attorneys
for both sides filed so many motions that, in one order, a judge
wrote the court is "troubled" over the amount of judicial
oversight needed for the case.
Attorneys for the
World-Herald unsuccessfully attempted to hit Gast with sanctions
in March 2001 after the Lincoln Journal-Star (the only media
outlet other than the Omaha Weekly to report on the case) quoted
him in a story about the suit. The World-Herald's attorneys
argued Gast's comments that were printed in the Jan. 19, 2001,
Journal-Star regarding statements Gottschalk made during his
deposition, were in violation of a protection order that sealed
The attorneys also
argued the inclusion of documents from the Beeder case that were
introduced in another case violated the protection order.
Gast is also handling a separate case, filed on behalf of former
World-Herald employee Willis Smith, who was forced to resign in
January 1998 after he was caught returning for cash at local
retailers promotional CDs he received at work. Smith owned 23,000
shares after 32 years.
That case is still pending, and may go to trial later this year.
The last exhibit in
the Beeder case is a four-paragraph statement announcing the
Gottschalk, much as
he did in Beeder's obituary, praised the former reporter.
"Dave was a valuable, principled and important contributor to this
newspaper's success during his tenure," Gottschalk said in the
statement. "He was recognized by his peers, the World-Herald,
and his sources as a consummate professional. We only have the
highest respect for Dave."
Jane Beeder called
the lawsuit "regrettable," but said she was glad it ended
"Dave always admired
the World-Herald management team," Jane Beeder said in the
statement," and his years in Washington were the happiest
in his life. We left many friends in the World-Herald family
behind when Dave retired."
Reprinted verbatim on page 2 of the July 16 Omaha World-Herald
Business section, it's the only coverage the Omaha Weekly
could find in Omaha's daily paper. No other local media outlets
have touched the story.