Posted on 04/06/2008 4:44:27 PM PDT by abb
Since taking control of the Tribune Company in December, Sam Zell has drawn a lot of attention in journalism circles for speeches laced with profanity, political incorrectness, insults and self-deprecating humor.
But all the twittering and tut-tutting over Mr. Zell’s remarks — and his suggestions that some reporting jobs are not needed — masks a more serious concern. With the newspaper industry going through an unexpectedly sharp contraction, Tribune is struggling under $12.8 billion in debt, and its financial condition has deteriorated, creating what specialists say is a very real risk of credit default in the next year or so.
That has forced the company to consider the sale of Newsday, one of its most profitable newspapers — precisely the kind of move Mr. Zell had said he did not want to make. “We didn’t do this deal to figure out what to get rid of,” he told the company’s flagship paper, The Chicago Tribune, last year.
Mr. Zell said from the start that he would sell the Chicago Cubs baseball team, but that deal has been delayed. Now, analysts say, Tribune probably needs to sell both the Cubs and another major asset like Newsday, and relatively soon, to remain solvent.
Of course, if this house is ablaze, Mr. Zell has supplied much of the kindling. Almost $8 billion of Tribune’s debt came from the highly leveraged deal, which he engineered, that took the company private. That borrowing now looms as the biggest threat to the company, at least in the short run.
“There’s very little margin of safety,” said Mike Simonton, senior director at Fitch Ratings. “The company needs to execute asset sales and cost cuts in order to make its debt service payments and offset the significant revenue declines.”
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(Excerpt) Read more at nytimes.com ...
ping
Tribune’s credit rating has slipped several notches below investment grade, and its bonds are trading far below their face value, signaling that the market sees a high risk of default. The company’s long-term, unsecured debt can be bought for less than 50 cents on the dollar.
The folks shorting the NY Times stock don't think it was unexpected at all.
As I’ve posted a time or two, Zell exited his real estate holdings perfectly, literally to the hour of the tippy top of the RE market. And he probably thought he’d get into another business for “fun” and that his consummate skill in RE would carry over. It’s a very common error among the very successful. He probably flat out blew it getting into the newsrag biz when he did and he’s pissed off. Any more complex than that..?
That's probably close to what happened. Successful people sometimes confuse a big bank account with business genius. Real Estate tends to cycle and if you're good and catch a little luck, you can get rich quickly. This change in the newspaper business is secular and there's nothing anyone can do to stop it. For reference see the history of how many hand scribes were put out of work by Johan Gutenberg.
It looks to me like the Chandler family got out in the nick of time.
I had the good fortune to meet Zell in the eighties in SanFran where he was giving a speech at a high roller RE investors conference. He’s one of those guys who commands the room the minute he crosses the threshhold — and he’s only about 5’3”. Fascinating, focussed, intuitive.
Good post and right on. Zell is an asset player, not an operating guy, so it’s no wonder he’s confused. (I’ve had personal experience with him.) Also, the Trib has become like every other urban newspaper in America—left leaning and critical of middle America’s values. It has lost its franchise, so why should we Chicagoans read something that slams how we live, what we believe in, how we believe our schools should be run, that our taxes are too high and governments don’t work, etc.
Every time I see an article posted re the Dinosaur Media Death Watch, I open it up just to see your vulture picture. Love it!! One picture is worth 1,000 words.
You are absolutely right, Sam is mostly an asset guy, but do not underestimate his vision and operational ability.
His RE sale timing was a thing of beauty. Blackstone had to turn around and sell, almost immediately, about half of the holdings it bought from Sam to reduce the debt load.
What he is trying to do right now is to sell some assets like Newsday, and transform Tribune into real media company built mainly around radio combined with some TV and Internet - to that end he is poaching Clear Channel, which even in shambles and without growth is worth more than 3 times than TRB. At some point he might even dispose of (sell or spin off) all paper assets (or liabilities, if one prefers) and be left with a much bigger and healthier company than what he bought. If anyone can do it, Sam probably can.
Oooops, got 3 error message, so did reposts before actually looking to see if it posted. Sorry!
http://online.wsj.com/article/SB120752422903193549.html?mod=hps_us_whats_news
Tribune Turns to Radio to Revive Empire
By SAM SCHECHNER and SARAH MCBRIDE
April 7, 2008; Page B1
As real-estate magnate Sam Zell tries to rejuvenate ailing newspaper and television empire Tribune Co., he is turning to another, more freewheeling medium: radio.
An influx of veteran executives from radio — including several hired in recent days from Clear Channel Communications Inc., which has been buffeted by the departures — is likely to upend Tribune’s once-staid culture. Under the direction of Mr. Zell and his No. 2 at Tribune, radio veteran Randy Michaels, pinball machines and a jukebox have been installed at the company’s corporate headquarters in Chicago. Another radio veteran, newly hired Chief Innovation Officer Lee Abrams, he floated some provocative ideas for reviving Tribune’s newspapers, including front pages primarily composed of colorful maps.
Mr. Abrams, formerly chief creative officer with XM Satellite Radio, says he put forward these ideas in hopes of sparking discussion about how to reinvigorate Tribune, staggering under $12.8 billion of debt and sharply declining newspaper ad revenue. “A lot of what newspapers do might be absolutely right” but there may be “things that aren’t [right] that we’ve got to identify,” he says.
Tribune has hired half a dozen radio executives since Mr. Zell took effective control of the company in a leveraged buyout in December, most prominently Mr. Michaels, a former radio chief for Clear Channel Communications known for helping consolidate the radio industry as well as for wacky stunts. He once arrived at a radio broadcasters’ conference carried on a litter and dressed in the garb of an Egyptian pharaoh to underscore in a speech how powerful consolidation would prove for radio.
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CITIZEN SAM
At 5 foot 5 and sans three-piece suit, Sam Zell likely struck little fear into the Tribune Co. staffers and executives gathered before the podium. But after they heard his salty-tongued recipe for a turnaround, they knew the staid world of newspaper ownership would never be the same
Headshot of Sinclair Stewart
SINCLAIR STEWART
April 5, 2008
NEW YORK — Sam Zell, like any good newspaperman, has a deft way with words, although occasionally his bon mots can veer toward the infelicitous.
Consider a few outtakes from the recent Sam Zell road show, a cross-country tour in which he has shared his unorthodox vision with thousands of employees of Tribune Co., the media conglomerate he acquired in an audacious, and some would say irrational, $8.2-billion (U.S.) deal late last year.
In January, during a gathering at the Orlando Sentinel, Mr. Zell muttered a brief “F#ck you” into the microphone after a staff photographer apparently turned her back to him as he was answering her question.
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If Zell loses a lot of money or is forced into some type of protective bankruptcy, that will send a message to others wanting to rescue a Dinosaur Media.
Just looking at the numbers and the trends, I can easily see Tribune (TRB) and McClatchy (MNI) going bankrupt this year. Both have huge debt to contend with. McClatchy bought Knight Ridder (KRI) two years ago. A mistake of cataclysmic proportions.
Tribune has a huge debt load from the Chandler family buyout.
I don’t think they can save themselves.
Zell, being an asset guy and not a wild-eyed investor trying to get into "glamour business", obviously looked at the debt side of the business, but he also looked at the other side of the balance sheet, and Tribco has some substantial assets (including RE that is significantly undervalued on the balance sheet) that he can sell to significantly reduce the debt (which he can also refinance at lower rates using his own collateral). Also Trib ESOP owns all outstanding stock not owned by Zell, so they actually have an interest in making it work, despite the pain. I am sure Sam saw the way to make the debt situation manageable while he is restructuring the company. Its roots are in print journalism, but the Tribune Company has branched beyond the written word to embrace virtually every aspect of modern media. One of the top US newspaper publishers, it owns about 10 major daily newspapers, including the Chicago Tribune, the Los Angeles Times, and Newsday (New York City). Tribune also owns 23 TV stations in about 20 markets, cable network Superstation WGN, and a stake in the Food Network (31%). The company's Tribune Media Services unit is a leading syndicator of news and other content. In addition, Tribune owns the Chicago Cubs baseball team, as well as a number of investments in online media.
I have seen and read several interviews with Sam Zell over the years, and I found him straightforward, clear, plainspoken and not underhanded or "talking his book" (unlike many other business "tycoons" or investment gurus like Trump, Buffett, Soros, Cramer et al). So, I liked him for that over the years.
....
Installing himself as chairman and CEO, Zell has announced several initiatives to help right the financial ship at the company, including the sale of the Cubs baseball team and a possible spin-off of its TV stations. The company had already been paring down its operations: It sold the New York City edition of its Spanish-language paper Hoy to ImpreMedia in 2006 and sold two Connecticut papers to Hearst Newspapers. Company also put Newsday for sale.
In 2008 the company announced job cuts -- through both buyouts and layoffs -- at the company's newspaper publishing group and corporate office.
You are right about McClatchy (MNI), which grew the revenues through disastrous merger with KRI, but keeps getting lower earnings (unlike Clear Channel which is growing earnings through cutting expenses while its revenues are stagnant), and its debt to assets ratio is much higher than that of Tribco.
I would not be too happy about any of them going bankrupt, though, since the only thing that this might do is to allow to wipe out most of the debt and be acquired clean, on the cheap by bondholders and/or someone who wants to be in that business - and we know who these people usually are, and who are going to staff the papers. I'd rather see a trickle and drip-drip-drip of dinosaur's "blood" on a quarterly basis, and what that does to their "newsrooms" and "editorial rooms", for as long as possible. Sorry, if it looks like a mean streak in me.
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