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Jim Cramer Blog
Just How Stupid Is Tribune Deal?
By Jim Cramer
RealMoney.com Columnist
4/2/2007 8:04 AM EDT
URL: http://www.thestreet.com/p/rmoney/jimcramerblog/10347942.html
Every now and then, a deal surfaces that is so stupid and egregious that you just can't believe it can be allowed to go forward. That's how I feel about this incredible plan to use the employees' life savings to finance a bid for Tribune (TRB) .
Let's count the ways that this is so stupid.
First, there's really very little skin in the game for the buyer. They aren't doing anything much at all other than putting to work a small amount of their personal capital to gain the editorial voice they want and to allegedly streamline the businesses.
Of course, they know nothing about the newspaper business, which, in some peculiar ironic twist, is supposed to be "good" because papers are being run so economically poorly. I can only presume that means if you fire everyone, run AP copy and break the unions, you can make more money. I figure as soon as things go bad, they can walk away because, despite any protestations to the contrary, these men are like countries; they can afford to lose whatever they want. And they will.
Second, we know that the only real free lunch on Wall Street is diversification, yet this concentration of retirement money in one asset -- the same asset as where their paycheck comes -- is the definition of reckless. No one with a degree of savvy in his right financial mind would participate in this nonsense where, if things go bad, you lose both your nest egg and your paycheck.
Third, we saw this kind of recklessness backfire in the '80s with the Carter Hawley Hale ESOP, a pretty darned good department store that went down the drain and the workers lost everything.
Fourth, I cannot think of a worse industry for an ESOP bailout. Cash flows are falling so fast that it would not be surprising to me to see this company go bankrupt within three or four years of the deal. In fact, I may be too generous. If the negative industry trends continue, there will be huge layoffs, and the retirement funds needed to protect those fired won't be there. That would then precipitate federal help for which we'll all pay. Newspapers are in a secular decline, and nothing can stop that. If you take a look at the situation with two different fine papers -- the Philadelphia Inquirer, which is just hemorrhaging, and the Minneapolis Star, which was just fire-sold, you know what I am talking about. Both were strong franchises as recently as a decade ago.
Fifth and final is a word to the wise of employees: Fight this. Fight this hard, or leave now and take your retirement funds with you or cash out if you can. I have been in contact with several high-level employees, both corporate and journalism, and it is clear to me that no one at the Tribune has a darned clue about what is really happening and how things work. This is going to be a disaster -- and I respect the work of both teams of buyers.
If we had a Labor Department, it would put a stop to this pronto. Of course, we have a Department of Capital, and it loves these deals, because it could care less about anything but compiling labor statistics. Classic late-stage capitalism at work.
Cramer's dead-on correct. If this deal goes though, it will be the end of the Chicago Tribune and Los Angeles Times as we currently know them. Sure, they'll keep printing for a number of years to come (though the smart move might be to attempt to go online-only), but they'll have so few employees that they'll be able to do little more than an average medium-sized city paper can do: Lots of local crime and accident coverage, some area sports, and tons and tons of wire copy.
Of course, ideologically, this is the best possible outcome for conservatives, since neither paper's management or staff has any interest in providing balanced news coverage.