Reader's Digest files for bankruptcy

September 11, 2009

By Matt Day

Reader’s Digest, the company whose success was largely responsible for Macalester’s rise to become one of the richest liberal arts colleges in the country, filed for Chapter 11 bankruptcy protection last month.

Macalester sold the last of its stock in Reader’s Digest’s holding company in 2007, chief investment officer Craig Aase ’70 said, but the impact of the magazine and its founders is visible throughout campus.

Dewitt Wallace, class of 1911, co-founded Reader’s Digest with his wife, Lisa Bell Wallace, in 1922. It became the most widely circulated magazine in the world, featuring condensed magazine articles and a wide variety of general-interest literature and reporting.

The Wallaces’ many gifts to the college helped fund renovation projects that updated the fine arts and science facilities in the 1960s and 70s. The library that bears Dewitt Wallace’s name was completed in 1988.

Wallace made Macalester a major benefactor in his will, and when he died in 1981, he left Macalester 10 million shares of Reader’s Digest stock.
Reader’s Digest went public in 1990, and Macalester’s endowment more than quintupled, rising to $320 million in 1990 from $65 million the previous year. The stock made Macalester one of the five richest liberal arts colleges in the country as late as 1996.

But Macalester’s financial fortunes were tied to Reader’s Digest, as restrictions prevented the college from diversifying its investments. When the magazine’s stock began losing value in the late 1990s, the endowment went with it. Macalester sold its remaining Reader’s Digest common stock in 2002, and sold its much smaller holding of preferred stock in 2007, Aase said.

The magazine’s fall accelerated as an aging readership and a troubled economy combined to help the holding company’s debt balloon to $2.2 billion when it filed for bankruptcy August 17.-
Under the debt-restructuring plan, ownership of the company will transfer to a group of lenders and the magazine will continue printing in the hopes of returning to profitability.