Today Tribune became the first major news organization to file bankruptcy. Since Zell made his bid to take over the company in early 2007, there was no shortage of expert opinion (summed up nicely here) that the complex plan under which he took the company private was risky and that employees would shoulder all the risk.
The guy who put up just $315 million of his own funds to engineer the $8 billion Tribune purchase a year ago this month in a deal that converted Tribune to "America's largest employee-owned company", now says filing Chapter 11 might ultimately save the company.
Though the company is nearly buried in $12.97 billion in debt, Zell carries little risk. Because employees own all the stock under the ESOP, they may get left holding empty stock(ing)s in the bankruptcy: the shareholders are the last to get paid out — behind Sam Zell.
"It has been, to say the least, the perfect storm," Zell said in a memo to employees. "A precipitous decline in revenue and a tough economy have coupled with a credit crisis, making it extremely difficult to support our debt. All of our major advertising categories have been dramatically impacted."
Also a year ago this month, Recovering Journalist wrote:
Just look at the tumult that accompanied Sam Zell's closing of his deal to buy Tribune Co. this week. The bankers were squeezing the deal right up to the last minute. Even Zell called it "the transaction from hell." And Zell's going to have to pedal—and peddle—as fast as he can to keep the company afloat financially. It's not just the Chicago Cubs that are going to be sold by Tribune. Look for a fire sale of real estate and newspapers (Los Angeles Times, anyone? Anyone?) as Zell strips the company for cash. And at this holiday time, say a prayer for the poor Tribune employees, who could be left holding the bag—through their retirement plan, which now owns the company through Zell's creative accounting—if things turn sour. Memo to Tribune employees: Get. The. Hell. Out.Hundreds got out and left with relatively decent severance packages that are now in jeopardy. “All ongoing severance payments, deferred compensation and other payments to former employees have been discontinued and will be the subject of later proceedings before the court,” current employees were told in an internal Tribune memo.
Tribune Company may be saved under the Chapter 11. Current employees with less than one year in the ESOP may not suffer a big hit. It is former employees who may be impacted the most by the bankruptcy.
* Edited for clarification 12/09