Trib boss Zell on way out (Dinosaur Media DeathWatch™)

Chicago Sun-Times ^ | August 14, 2009 | David Roeder

[abb]

Sam Zell's days as a media titan in Chicago are nearly over.

The motorcycle-riding billionaire, renowned for his deft touch with real estate and corporate turnarounds, took Tribune Co. private in late 2007 promising to energize the lumbering company. He piled on debt at exactly the wrong time, and a collapse in advertising for traditional media forced him to take the company to Chapter 11 bankruptcy. » Click to enlarge image Tribune Co. Chairman and CEO Sam Zell (AP)

Eight months after the filing, two sources familiar with the process said creditors are working on a reorganization plan that elbows Zell aside. The creditors, including investment banks owed $8.6 billion from Zell's Tribune takeover, would stage a takeover of their own and sell off the company's newspapers and broadcast stations as they see fit.

"The banks will be in charge," one insider said, adding that they are growing impatient with Zell's stewardship. The bankruptcy court on Monday granted Zell extended time, until Nov. 30, to be the first to file a reorganization plan. Creditors have to wait at least that long before filing their own plan with the court.

William Brandt Jr., a corporate turnaround expert not involved in the case, said enough time has passed so that creditors and the debtor want to cut losses and save face. He said an honorable exit is especially important to Zell, who might need investment banking help for future deals.

"This was a textbook case of a leverage buyout gone bad," said Brandt, president of Development Specialists Inc. "These were imbeciles who had no idea what they were doing."

Brandt said Zell waited too long to sell major assets, accomplishing only a $650 million sale of Newsday, the Long Island-based daily. A sale of the Tribune-owned Chicago Cubs for around $900 million is not final and suffered a months-long detour when Zell tried to sell Wrigley Field separately to an arm of state government.

Still, Tribune financial reports filed with the bankruptcy court show recent improvement. The company's cash on hand rose to $740.5 million as of June 28, up from $702 million in late May. It reported profitable operations in June aside from debt obligations, but for the period from Dec. 8, 2008 to June 28 it said it lost $836.5 million. The numbers don't include units such as the Cubs, which were left out of the bankruptcy filing.

Tribune spokesman Gary Weitman said, "Since going private, we have re-engineered many of our existing products and introduced new ones, expanded our local news programming, dramatically reduced our expenses and positioned the company to succeed in the face of an extremely difficult ad environment and a worsening economy."

He added that Zell and other managers "remain actively engaged and committed to Tribune. The restructuring is still in progress and we continue having positive discussions with our various creditor constituencies. It is premature to speculate about the company's final ownership structure."

While the company has laid off workers, it has hired others to fill new needs. Bankruptcy experts said creditors usually don't object to such new expenses if they believe they help preserve value.

Tribune debt recently traded for about 7 cents on the dollar, meaning investors think a lottery ticket is just as likely to pay off. The company's total debt, counting what Zell assumed in his takeover, is around $13 billion.

Brandt said the Tribune deal has become such a "reputational disaster" for Zell that's he's probably not involved much in management other than creditor negotiations. That could be one reason the company wants bankruptcy court approval to pay bonuses of about $70 million to top managers.

Tribune owns the Chicago Tribune, the Los Angeles Times and other major newspapers, as well as WGN-TV and radio and 22 other TV stations.

David Wirt, chairman of the bankruptcy practice at the firm Locke Lord Bissell & Liddell, said Zell may be getting pressure because creditors want to see revenue growth, and not just cost-cutting. Also, the bankruptcy process is expensive and participants tire of paying lawyer fees that can top $800 an hour for senior partners, said Wirt, whose firm is not involved in the case.

In late 2008, debt analyst Mike Simonton of Fitch Ratings estimated Tribune was worth about $4 billion if sold. Since then, the company's balance sheet has worsened. As of June 28, Tribune said its liabilities exceeded assets by $7.1 billion, vs. $5.7 billion at the time of Simonton's estimate.

Even after a drawn-out liquidation, creditors may be lucky to get a third of their investment back.

[Reeses]

"These were imbeciles who had no idea what they were doing."

Zell getting into a business he knew little about is similar to Obama going from community organizer to chief executive with little in between. Obama's story will have a similar ending.

[stephenjohnbanker]

“IIRC, Zell himself put “only” $350 million into the deal.”

Hard cash maybe, but I guarantee you the lenders took collateral from Zell. I spent 20 years financing large real estate projects, and no lender would leave themselves that exposed. Zell must have taken at least a 1 billion hit, and I figure much more.

[abb]

http://www.modbee.com/local/story/816518.html?story_link=email_msg
Deal to sell Modesto Bee building to college district falls through

[abb]

I defer to your experience, but I’m pretty sure the lenders only have the assets of the Tribune Company as collateral.

I’ll try and dig up some articles.

[stephenjohnbanker]

“Who knows? The Feds have been cooking the books so much lately nobody knows what’s going on. And Congress refuses to let the GAO audit their books because “we wouldn’t understand, and don’t really want to know.”

LOL! Cooking the books is the understatement of the decade. Typical elitist response “we wouldn’t understand”. I guarantee you, I would understand.

[stephenjohnbanker]

“I defer to your experience, but I’m pretty sure the lenders only have the assets of the Tribune Company as collateral”

If this is the case, Zell is a friggin genius, and put the Hunt brothers deal in 1980 to shame ;-)

[Milhous]

FWIW Zell reportedly used Trib’s ESOP as collateral. Caveat: I’m not a banker.

[abb]

http://articles.latimes.com/2008/dec/09/business/fi-tribune9
Tribune Co. files for Chapter 11 bankruptcy protection

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNnMpmsUNMxQ
Tribune Bankruptcy ‘Stops Clocks,’ Eases Debt Burden

http://online.wsj.com/article/SB122876270495988567.html
Tribune Co. Files for Chapter 11 Protection

Last year, Mr. Zell’s firm invested $315 million in Tribune in exchange for a subordinated note and a warrant entitling it to acquire 40% of the stock. He now says he assumes his investment is worthless.

Here are the court docs.

http://www.scribd.com/doc/8737362/Tribunes-Bankruptcy-Filing

[abb]

http://weblogs.baltimoresun.com/business/hancock/blog/2009/08/will_tribune_sell_off_the_sun.html
Will Tribune sell off The Sun, other papers?

[abb]

Actually, the smart guys in all this were the Chandlers. But had they been REALLY smart they would have sold their interest in about 2003 and could have made about 3x what they actually did sell for.

http://www.deadlinehollywooddaily.com/urgent-chandler-trust-sells-off-all-tribune/

Contrast them with Pinch Sulzberger who paid $1.1 billion for the Boston Globe in 1993, rode it down to three years ago when he could have sold it for $1/2 billion, and now it is worth not much more than the real estate on which sits the printing presses. They are worth only scrap price.

http://www.boston.com/ae/media/articles/2006/10/25/local_group_may_bid_for_globe/
Local group may bid for Globe
Retired GE chief, adman involved; paper not on block

http://www.latimes.com/business/la-fi-platinum9-2009aug09,0,4195446.story
Platinum Equity has submitted a “preliminary bid” for the paper, according to a person with knowledge of the proposal. The firm is offering to pay $35 million for the paper and assume $59 million in pension liabilities, according to published reports.

[abb]

http://atlanta.bizjournals.com/atlanta/stories/2009/08/17/story2.html?b=1250481600^1932931
AJC relocation would end an era for Atlanta

[stephenjohnbanker]

A consortium of lenders(typical of a deal this size) will take it in the shorts. Money was so loose back then, it wouldn’t surprise me if Zell got away with it. Thanks.

[stephenjohnbanker]

“Actually, the smart guys in all this were the Chandlers. But had they been REALLY smart they would have sold their interest in about 2003 and could have made about 3x what they actually did sell for.”

Yep, and Pinch is an incompetent fool ;-)

[abb]

A consortium of lenders(typical of a deal this size) will take it in the shorts. Money was so loose back then, it wouldn’t surprise me if Zell got away with it. Thanks.

To be accurate, I would have to say that Zell didn't "get away with it." He put real money into the deal and has lost it all. And he's lost some of his reputation, which IS important to folks like him, especially at his advanced age. This deal will be remembered for a long, long time, since it involves newsies. They protect their own and will always remember Zell's slights.

But Zell damn sure arranged the deal where his financial risk was minimal compared to the lenders. And the ESOP is gone which means the defined benefit retirement plans which depend upon it are in jeopardy.

[stephenjohnbanker]

No doubt the personal failure hit Zell hard.

[ConservativeMind]

FYI:

Stopping the Newspaper Deathwatch:
http://www.pcmag.com/article2/0,2817,2351446,00.asp

[bert]

.......”The banks will be in charge.....

Wonder which banks? Might the lead bank be Government owned?

Might the socialists be saving the media with taxpayer funds?
Might they be actually taking control?

Am I paranoid?

[Milhous]

Dvorak says:

While people like to call these publishers dinosaurs, the better analogy is to a Dodo bird. I say this because newspapers aren't huge monstrosities killing everything in their path, but huge, dumb birds that have paid no attention to change and the new reality.

I've neglected my tweets. :(

[abb]

http://www.niemanlab.org/2009/08/who-really-is-the-associated-press-accusing-of-copyright-infringement/
Series: AP’s online strategy
Who, really, is The Associated Press accusing of copyright infringement?

http://associatedrepress.tumblr.com/
Associated rePress
A tribute to “fair use” and the AP’s misguided crusade against the hyperlink. All content on this site was generated automatically from the AP’s own RSS feeds. (Sorry, we forgot to include your magic DRM beans.)

http://www.citmedialaw.org/
What’s New at the Citizen Media Law Project

[abb]

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2009/08/steve-brills-journalism-online-venture-signs-on-500-newspapers-.html
Steve Brill’s Journalism Online venture signs 500 newspapers

http://www.statesmanjournal.com/article/20090814/OPINION/908140335/1049
Websites should offer ‘news that’s fit to buy’

http://www.informationweek.com/blog/main/archives/2009/08/wsj_hiring_for.html;jsessionid=N4KEMDDVOHPJLQE1GHPSKH4ATMY32JVN
WSJ Hiring For New Paid Site

http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1004003489
AP Bans Use of Famed Woodstock Photo By Members