Memos were circulating throughout the Bertelsmann empire last week as top executives looked to reassure employees about the company's future following the surprise ouster of Bertelsmann chairman and CEO Thomas Middelhoff. Employees were shocked by Middelhoff's resignation, which the German media giant said was due to "differences of opinion" between Middelhoff and the supervisory board about the future direction of the company. Gunter Thielen, chairman of Bertelsmann's printing and manufacturing group, Arvato, was named to succeed Middelhoff.
Thielen is viewed as more bottom-line—oriented than Middelhoff and more interested in the day-to-day operations of the company. Under Thielen, some of Middelhoff's riskier investments may not remain part of the Bertelsmann portfolio for too long. "Thielen won't tolerate companies that don't have a clear strategy for profitability," a source said. In a memo sent to all Bertelsmann employees July 31, Thielen sounded a cautious note about the near term, observing that while operating results are on target despite a decline in revenues, given the world economic situation, "we are cautious in our expectations for future results." Thielen stressed that his top priority is the long-term growth of the company.
He noted that because the company has exceeded a self-imposed debt limit, Bertelsmann will work to cut that debt "through a short-term consolidation phase." Although he offered no specifics regarding the consolidation, Thielen said the process will be geared to strengthening Bertelsmann's core content businesses, and to ensure that the company has the resources to "grow from within."
Bertelsmann's financial goal continues to be to achieve a 10% return on sales over the medium term, Thielen wrote. Thielen also said that Bertelsmann will continue to prepare for a possible public offering of the 25% stake of Bertelsmann held by Groupe Bruxelles Lambert. The offering will not take place before 2005 and no shares held by the Bertelsmann Foundation or the Mohn family, which controls a majority of Bertelsmann stock, will be sold on the stock market.
Thielen was not the only Bertelsmann executive issuing memos last week; both Random House chairman Peter Olson and Bookspan president Markus Wilhelm wrote letters assuring their staffs of their place within Bertelsmann. Olson reported that after meetings with Thielen, the new chairman is a "great proponent of a decentralized Bertelsmann" and that he "strongly endorses Random House's philosophy of publishing autonomy and editorial independence." Olson also said he expects that Random will continue to receive the resources it needs to grow.
Wilhelm stressed that Bookspan has had "excellent results" so far this year, and the prospects for the remainder of 2002 are good. He said the book club operation has exceeded expectations since the inception of the partnership and said the joint venture has the support of both partners (Bertelsmann and AOL Time Warner).
While Thielen's memo suggests that Random and Bookspan will remain part of Bertelsmann (albeit with some possible belt-tightening), it does little to counter speculation that he may be looking to end Bertelsmann's involvement with Barnes & Noble.com.
Bertelsmann invested $200 million in BN.com in October 1998 and still has a 36% share in the e-tailer. Although BN.com has trimmed its losses while raising revenues, it is not clear when it may turn a profit, and Thielen may be less willing to tolerate BN.com's losses than Middelhoff. Bertelsmann owns 57.5 million shares of BN.com, worth approximately $52 million. At the time of BN.com's IPO in May 1999 the shares were worth more than $1 billion. A spokesman for BN.com said the company "expects no change in the relationship" with Bertelsmann.
