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Financial Triage At Whittle


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FINANCIAL TRIAGE AT WHITTLE

Nothing better symbolizes the ambitions of media entrepreneur Christopher Whittle than the sprawling Georgian-style headquarters he built for Whittle Communications LP in Knoxville, Tenn., three years ago. Nowadays, the $55 million edifice also symbolizes Whittle's woes.

Successive rounds of layoffs at the media and marketing company have left the building half empty, according to current and former employees. Since 1992, Whittle Communications has reduced its workforce from 1,100 to 700. Whittle's office is among the empty ones: The charismatic founder is on the road most of the time--searching for investors to keep his businesses afloat.

Whittle acknowledges he tried the same strategy last year but found no buyers. He now says he erred by lumping all his assets together and seeking one blockbuster investment: "We were out in the market trying to raise boxcars of dollars," explains Whittle. This time, he is chopping up his company to offer relatively bite-size equity stakes in specific businesses, such as Channel One, a profitable satellite-TV service for classrooms, and the Edison Project, his controversial plan to build a chain of for-profit schools.

DISENCHANTED. Whittle may have lowered his sights. But company insiders say he needs a deal even more than before. They say the Edison Project requires a cash infusion to continue through 1995. And one of Whittle's other major ventures, Medical News Network, an on-line service for doctors, is being retooled to account for health-care reform. "Everything is starting to collapse in on him," says a Wall Street executive who has heard the pitch that Whittle's banker, Dillon, Read & Co., is making for Edison.

So murky is Whittle's future that some of his employees fear the company will face bankruptcy if it doesn't find investors by mid-August. Whittle refuses to comment on the rumors. But privately, two senior Whittle executives flatly deny that the company has any plans to file for Chapter 11 protection--even without new investors. Although revenues at the privately held company have dropped sharply from roughly $230 million in fiscal 1993, Whittle has barely $100 million in bank debt, one of the executives notes. And observers say Channel One is successfully renewing sponsors for its mix of current events and commercials.

Indeed, executives close to Whittle say he is close to a deal to sell about 57% of the service to GS Capital Partners, an investment fund managed by Goldman, Sachs & Co. The deal, worth roughly $250 million, would more than offset the $25 million cost of closing down Special Reports, a failed TV and magazine service for doctors' offices. And it would reduce the holdings of Whittle's disenchanted partners. Time Warner Inc. and Dutch consumer-electronics giant Philips each own 33.4%, while Britain's Associated Newspapers Holdings Ltd. has 22.3%. Time Warner may write off the rest of its investment, says one Whittle insider.

A Channel One deal would also allow Whittle to seek investors for what friends say is his pet project--Edison. Although it has been radically scaled back, Whittle still hopes to start running schools in the fall of 1995. So far, he and Edison CEO Benno C. Schmidt Jr. have signed up 11 public schools in Massachusetts, Texas, Kansas, Colorado, and Michigan.

But providing the service to just those schools could require $50 million. And having spent $40 million already, Edison now has only enough funds to carry it through the remainder of 1994. While Whittle has been fairly successful in wooing school districts, he still faces longer-term hurdles, including test results showing that for-profit schools don't necessarily produce better students.

EXHAUSTING ROUND. Salvaging Whittle's newest venture, Medical News Network, may be the hardest task. The company says it successfully tested the service--which transmits information and ads about drugs and medical treatments--with 5,000 doctors. And Whittle tentatively signed up three companies to buy ads worth $147 million. But then came the Clinton health-reform bill, which has shifted the focus from individual doctors to large health-maintenance organizations. Now, Whittle must rethink how his service is distributed. To pay for this overhaul, he is talking to three companies--among them, Reuters Holdings PLC--about an equity stake.

For Whittle, it all adds up to an exhausting round of sales pitches and negotiations. On July 19, for example, he was in London for meetings with both his current partners and prospective investors. Executives who know this inveterate salesman figure he'll pull off two of the three deals. If he doesn't, the wind soon may be whistling through Whittle's headquarters.

WOBBLY WHITTLE NEEDS HELP

Status of major Whittle Communications operations

CHANNEL ONE Whittle is trying to sell more than 50%

of the classroom video service for $250 million to a fund controlled by Goldman Sachs.

EDISON PROJECT For-profit schools venture faces a cash crunch after $40 million in startup costs and no revenue. Seeking a $50 million infusion.

MEDICAL NEWS NETWORK On-line service for doctors is being retooled because of health-care reform. The unit is talking to three potential equity investors.

JOE MCNALLY/SYGMAMark Landler, New York


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