The reason the Tribune went under isn’t primarily because dead tree media is having a hard time making money these days, though it is. The reason it’s going under is because it has too much debt, and can’t borrow much more. It has too much debt because when Zell took over the company, he loaded the company down with the costs of his takeover.
This is standard in deals where private equity firms, or takeover artists like Zell take a company private. The cost of the buyout is loaded onto the takeover target. The new owner then tries to deal with whatever cash flow problems or other issues the company might have had, pays itself a huge dividend, and then sells the company, either to someone else private or back onto the public market. The clean ups are often not as good as they look, they destroy long term value, but the short term is what matters to the market, even though the firm which is resold is generally loaded down with a huge amount of debt, and has had valuable parts of the business sold off.
So, with the Tribune what happened is that Zell bought the company and then a big bad recession happened. If the Tribune wasn’t burdened by so much debt, it could probably have struggled through for a few years, hoping that when the recession ended it could pick things up and that in the meantime it could continue restructuring for the new realities of the news business, where advertising profits from the printed editions are down and never going to recover fully.
But because of the debt, it can’t. Being taken over by Zell is precisely why it’s going under.
This pattern is going to repeat with a lot of private equity acquisitions. Most were bought with the explicit intention to flip, but in the middle of a bad recession or maybe even a depression, with balance sheets burdened by debt related to their own takeover, no one wants to buy and the debt makes it hard for them to survive.
Private equity was easy money, just like high finance.
Until suddenly… it isn’t.
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I heard a very sad call on Thom Hartmann today who is an ex LA Times worker. She was crying. Pension funds, gone. Employee Assistance Fund to the tune of $80 million, gone. I felt truly sorry for her. Tragic. She was calling to ask why thieves like Zell don’t go to jail.
My question, too.
Hey Ian!
Eric Alterman hits this in today’s Altercation as well. It seems that all the various pieces of TribCorp are in the black but just not able to service the debt.
And it also looks like Zell cushioned himself quite nicely and as always, it is the employees who will take the biggest hit.
Zell is an asshole. Trib took over ouir local paper which was making money. Sucked the money out. Zell bought it. Told the writers to write more dog stories. Told a photographer to go fuck herself. said he wanted more graphs and visuals. And turned the paper into USA Today Lite. It’s now a piece o’ crap. Whatta bum.
http://www.youtube.com/watch?v=LDy7vn7-LX4
So this morning I had the unequaled pleasure of hearing the editor (I didn’t catch his name) of the WSJ on NPR state: if you’re not making money, you’re not relevant. It was breathtaking really. Short-term short-sighted quarterly profits are all that matter to Wall Street.
Looks like Chicago is ripe for a non-profit sustainable-in-the-long-term newspaper, since the Trib is about to succumb to the WSJ model of private profit uber alles. In this case, the losses truly are socialized, since the citizens will no longer be served by their own newspaper.
Seems like former CEO was complicit in the heist. When he gets bribed w/ over $41 M , and ignores his fiduciary responsibility to the employees is he liable in a civil action?
Bingo.
Tangentially related.
I’m on the finance committee of SUNY-NP Foundation. Two new members this year, both from hedge funds. As of a meeting shortly after Sept 15, they were stressing that we do more nontraditional investing, such as private equity and hedge funds. Pointing to the above market returns earned by Harvard, Yale, Stanford endowments. I led the resistence. We now know that Harvard’s endowment has lost $8 billiion this year, down to something like $35 billion, and I doubt their hemorraging is over.
Newspapers have always been and still largely are highly profitable. But investment analysts, hedge funds, etc. have constantly demanded that they be even more profitable. The result is that we see round after round of cutbacks. They get hollowed out. Maybe Murdoch will take them over and fold them into his empire or maybe a private investor like Zell comes along and does a leveraged buyout which as Ian points out requires the target company to squander even more of its resources paying off the heavy debt burden of its sale.
We can expect to see a lot more of this. We have already seen bank failures, the problems of the automakers, and after Christmas likely a lot of retailers failing as well.
Zell earned a lot of enemies when he visited the Sentinel Jan. 31 to give employees a pep talk. When photographer Sara Fajardo asked him a question about softening news coverage, Zell replied with a rambling sermon touching on journalistic arrogance and the importance of giving readers what they want, even if what they want is stories about puppies instead of long investigative pieces. He capped the rant with a barely audible “fuck you” directed at Fajardo.
Asshole.
Don’t you just love vulture capitalism?
Good for you. It took a lot of chutzpah for those guys to talk up nontraditional investments, considering that September 15 is when Lehman failed and the credit crunch struck with a vengeance. It’s like having to tell passengers on the Titanic that the reason they are treading water is because the ship is sinking. You would think they might have noticed.
OT I think people in Illinois are really depressed by the Blago arrest, just another piece of bad news that they didn’t want to hear.
Aren’t these the same guys (or their cousins) who were pushing privatizing Social Security, because we-the-suckers would get better ROI that way? Shouldn’t they have been paying more attention to what the market was actually doing and less to quarterly reports by the bank-robbers?
As I understand it, Private Equity is the 21st century euphemism for LBOs. And we know how all prior LBO binges blew up, by taking on so much debt that they couldn’t service it in bad economic times.
Leverage works in 2 directions. It makes profits seem sky high during good times, but the mix between more debt, with it’s unavoidable service payments, and more flexible profits where dividend payments can be suspended to help the company make it thru bad times, makes a company brittle. And, as you point out, behaviorally the high debt load makes cost cutting so extreme that the company eventually ends up being unable to perform any function.
Don’t expect the market’s demand for high profitability to change anytime soon. If the economy pulls out of its nosedive, that will only launch another round of leverage.
I launched a little behind the scenes lobbying, as a result of which we had a mini-retreat in my house a bit over a month later. By then, the ring leader, a physically large person (tall and hefty) became quite a puppy dog. It’s one of the easiest transitions from pit bull to lap dog I’ve ever seen, just by standing up to him.
OT Eric Holder confirmation hearing to be Jan 8
You are to nice to Zell right after 9/11 the Tribs readership in the Chicago area got below a million readers no link my boss told me. Ad revenue dropped as a result my boss a delivery agent and everyone other agent took a pay cut or quit.
The people willing to work for less money were not as good as the old people complaints people not getting their delivery papers went up.
Since the price of gas was going up and the Trib would not pay the drivers changed their routes. Before we would drive down a street twice so that our drivers side window faced the house when we threw the paper.
We could not afford to do that anymore one pass down a street.
The over the car throw is less accurate more papers end up in bushes resulting in more complaints.
The Trib got so cheap they stopped buying over sized rain bags to wrap the papers in…again resulting in more complaints.
Eventually we started loosing customers. My last year there I made a little over $1,000 in Christmas tips I gave very good service and I was still loosing customers.
Loss of customers means less ad revenue. Please remember that we had just had 9/11 and started 2 wars and we were losing customers because we were short changing delivery of product!
Zell should have looked at the declining customers base and turned that around by investing more money in drivers.
Because if you can’t sell papers after 9/11 no economic up turn will save you.
But suits don’t understand the nuts and bolts of business.
The Trib was talking about but never invested in newspaper bagging machines that would have bagged the paper in plastic a must in Illinois considering the snow and rain faster than any human could with less pain.
Try stuffing 350 papers into small bags 7 days a week your hands will hurt allot over 500 on sunday but we had help that day, of course we also had 7 pound papers. The machine would seal the bag so no wet paper complaints.
But of course investing the money for these machines would have meant no bonuses for Trib executives for another year of declining readership since the 70’s early 80’s?
I think as Americans worked more hours to compensate for smaller paychecks newspaper readership went down in direct correlation to the loss of free time to read the newspaper.
In other words the Tribs support of GOP business policy killed their business.
Hope LHP is ready and doing more research.
Like loosing money:) Glad you stood up to them.
Sometimes there is good news that comes out of a bankruptcy
http://rawstory.com/news/2008/….._1209.html
Don’t I recall Eastern Airlines dying a very public death over the same kind of shenanigans?
Who is in charge of the Chicago Sun Times now that Conrad Black is out another Republican? Sure the Trib was a GOP paper I think they endorsed Lincoln, but the Sun Times had Bob Novak write for them.
Which still made both papers more liberal than the comments section of my local Illinois paper.
Shortly after Zell took over the Tribune, memo went out to employees covering sexual harassment.
Say, you are on your own people. Don’t bother me with details.
Hmmm Are GOP businesses more likely to be in trouble now because they bought the kool aide?
If we remove fake Dem business like the ones Obama’s economic team worked for and look at business that try to be nice to workers, the environment etc and compare that with business that practiced what Bush Preached and or supported the GOP what would we find?
Another great newspaper ruined by another greedy douchebag. What a shame.
Do you have the memo we might need it later if the GOP wants to bail out the Trib.
I don’t think there’s anyplace on the bailout application form to attach a memo :-P
http://mtblog.vanityfair.com/o…..ailout.gif
OT how much would pent up demand help the economy if banks started lending again to consumers? I mean they have the money to lend right? They are buying other banks so they have the money right?
Oh, we’re not exactly surprised, Hugh. And considering what a hash this guy has made of state government, it’s not 100% bad news, either.
My biggest regret is that the Obama haters will have a fresh source of venom, now that this birth certificate nonsense is going nowhere.
Easter Airlines was shut down by a machinists strike. After about a year of non-operation, they went bankrupt.
Yes, Eastern finally succumbed to gross mismanagement by corporate raider Frank Lorenzo, a huge debt burden, and crippling strikes that resulted from Lorenzo’s union-busting attempta.
The gross notional credit default swap position on the Tribune Company is $19 bn. The net notional is $1.5bn. It will be interesting to find out the value of the debt, but I bet that the holders (described below) will simply hand it over for payments equal to the face value. That leaves $11bn or so that has to be settled by cash payment instead of physical settlement.
The asset value of the company on its schedules is less than $7.6bn, exclusive of the Cubs and Wrigley Field. If we give them the $7.6bn and add $1bn for the Cubs, there should be enough to pay the senior debt, so it should have enough value to pay off the debt. Maybe this one won’t be a real problem, and if collateral has been posted, the bankruptcy will free up a bunch of collateral.
As the the big debt, the loan was made by JP Morgan Chase, and syndicated to other big lenders: