Monday, December 8, 2008

Zell Hell. Realized.*

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

1 comment:

Anonymous said...

Lifted from the Chicago Reader's media blog:
Given the highly peculiar timing of Tribune Co.'s bankruptcy law filing and Blago's arrest, let's put this all together.
Blagojevich wants McCormick fired. He gets assurances from the Tribune Financial Adviser that, in return for state help with selling Wrigley Field, Zell will clean out the Tribune editorial board (NOT, incidentally, put "pressure" on them to skew their positions but, rather, sweep out McCormick and a few others with the cover that the dismissals are all part of the endless Trib downsizings. No muss, no fuss, and there's plenty of plausible deniability to go around).
Meanwhile, the Tribune gets wind of Blagojevich's impending arrest. A light goes on in the Tower, possibly in the head one of the three dim bulbs inexplicably occupying the top 3 positions in the newsroom: "Holy cow, if we clean out the editorial board and then Fitzgerald reveals the back-and-forth between Zell and the governor, it might not look so good!"
So the bobble-head editor sends word up to Zell. Zell, realizing that he now can't axe McCormick and a few others in editorial for cover, also realizes that if he doesn't go ahead with SOME layoffs, it'll also look fishy. So he instructs his people to just find 11 other random newsroom folks to show the door.
With no hope of state help on Wrigley, the company's debt default is imminent and the situation dire. Bankruptcy law is the only refuge and time is short. So Zell decides to file for protection but needs to make it sound not like a panic move after a suddenly-gone-south failed conspiracy with the governor but rather a reasoned next step in the deal from hell. So he has a lackey leak to the online Wall Street Journal over the weekend before the actual announcement on Monday, just in the nick of time before the governor is collared at 6 a.m. Tuesday.
As ryan, I believe, and others have pointed out, it looks exceedingly odd and probably in a culpable way that Zell didn't just say no when Blago came a calling and immediately report the incident to authorities. Or at least to his own frickin' newspaper!!! Jim Warren has called Zell a naif in this matter, but it goes way the hell beyond that. Even Fitzgerald said that he was lying awake at nights worrying that McCormick would be fired. Zell looks pretty damned guilty, and maybe we'll learn more when Blagojevich or others start talking.
What's just as peculiar, though, is the thought that someone (or perhaps several someones) in the Trib newsroom would flag Zell off. A good guess would be that it was one of several folks in glass offices on the 4th floor who directly owe their nice new jobs to Zell and his people.
(For that matter, the Obama folks apparently weren't running to Fitzgerald either when they were approached about the Senate seat. They didn't go along; but they didn't exactly do their civic duty, did they?)
I haven't yet seen the Thursday Trib, so maybe they'll have this all covered. Maybe we'll learn the identity of Tribune Financial Adviser (sounds like a character out of a David Lynch movie, doesn't it?) and just what transpired between Zell and Blagojevich and all the other nice little details on the Tribune end of this scandal that should be immediately available to Tribune journalists eager to clear up the whole ugly matter.
So maybe it will all be there, once I navigate my way past all the Zell-inspired clip art and graphic crap. However, I'm not betting on it.