Debt Topples

By RICHARD BEHAR

"The day you retire, you're finished," a crusty William Jovanovich often told his nail-biting subordinates. Yet last week, after 34 years at the helm of book-publishing giant Harcourt Brace Jovanovich (1989 sales: $1.8 billion), the 70-year-old iconoclast finally buckled. He passed his chairmanship to HBJ board member John Herrington, a former U.S. Energy Secretary. "The burden was too great, and Bill had had enough," explains another director. "He was also getting to be in the way."

Jovanovich had already been replaced as chief executive in December by his son Peter, 41, but last week's final farewell was abrupt -- and necessary. While the company faces no immediate liquidity crisis, its $1.7 billion debt is dragging it down. HBJ posted an operating loss of $242 million last year, and its stock has collapsed to $3 a share, from $19 in 1989. To shed ballast, HBJ sold its Sea World theme parks last year for $1.1 billion. But the company needs to sell even more assets, and the elder Jovanovich did not have the heart to tear apart the house he had built and ruled single-handedly since the 1950s.

Jovanovich, the son of a poor immigrant coal miner, never owned more than 2% of HBJ's stock. This lack of control came to haunt him after he expanded the firm too rapidly in the 1980s. When the company's stock sank in early 1987, British publishing tycoon Robert Maxwell launched a hostile takeover bid. In a long and bitter fight, Jovanovich prevailed by recapitalizing HBJ with nearly $3 billion in debt, a large chunk of it in junk bonds. Maxwell, who called Jovanovich "a dumb Croat coal miner" who "killed" the company, has offered to buy some assets. "Maxwell is twisting the knife, and I think it really hurts Bill," says one HBJ insider.

The elder Jovanovich is renowned for his strong advocacy of intellectual liberty, but he ran HBJ in a Kremlin-like fashion, refusing to talk to most reporters or Wall Street analysts. Son Peter promises more glasnost. His first task is to remake the company's board, which overflows with yes-man academics handpicked by his father. "Academicians are not accustomed to dealing with billion-dollar junk-bond problems," says Charles Elbaum, an industry consultant. Observes a current HBJ director: "Trying to get these people to focus on financial issues is difficult." Even Jovanovich seemed to sense 30 years ago that his times would inevitably change. In a rare interview with TIME in 1960, he remarked, "The day it gets to be a choice between a manuscript and the balance sheet, I'll get out of publishing."