The more I read about the Tribune bankruptcy, the more Sam Zell resembles one of those old movie villains.
Andrew Ross Sorkin writes:
Mr. Zell isn’t the only one responsible for this debacle. With one of the grand old names of American journalism now confronting an uncertain future, it is worth remembering all the people who mismanaged the company before hand and helped orchestrate this ill-fated deal — and made a lot of money in the process. They include members of the Tribune board, the company’s management and the bankers who walked away with millions of dollars for financing and advising on a transaction that many of them knew, or should have known, could end in ruin.
It was Tribune’s board that sold the company to Mr. Zell — and allowed him to use the employee’s pension plan to do so. Despite early resistance, Dennis J. FitzSimons, then the company’s chief executive, backed the plan. He was paid about $17.7 million in severance and other payments. The sale also bought all the shares he owned — $23.8 million worth. The day he left, he said in a note to employees that “completing this ‘going private’ transaction is a great outcome for our shareholders, employees and customers.”
Well, at least for some of them.
Tribune’s board was advised by a group of bankers from Citigroup and Merrill Lynch, which walked off with $35.8 million and $37 million, respectively. But those banks played both sides of the deal: they also lent Mr. Zell the money to buy the company. For that, they shared an additional $47 million pot of fees with several other banks, according to Thomson Reuters. And then there was Morgan Stanley, which wrote a “fairness opinion” blessing the deal, for which it was paid a $7.5 million fee (plus an additional $2.5 million advisory fee).
The Tribune employees (past and present) are now just one creditor among many, and their retirement plan suddenly is near worthless.
Mr. Zell financed much of his deal’s $13 billion of debt by borrowing against part of the future of his employees’ pension plan and taking a huge tax advantage. Tribune employees ended up with equity, and now they will probably be left with very little.
“If there is a problem with the company, most of the risk is on the employees, as Zell will not own Tribune shares.” He continued: “The cash will come from the sweat equity of the employees of Tribune.”
But what about those employees? They had no seat at the table when the company’s own board let Mr. Zell use part of its future pension plan in exchange for $34 a share.
Mr. Newman, the analyst who predicted the trouble, said in an interview on Monday, “The employees were put in a very bad situation.”
An anonymous Tribune employee emails Josh Marshall:
You are right on the money, this filing goes directly to insanely bad business decisions, not the secular decline in newspapers. The amazing thing that is happening right now is that all of the company’s assets are in the black. All of them. Every television station and newspaper is making money. Now lets not kid ourselves — many are in a fast downhill spiral, revenues are declining, etc. But what has killed this company is the insane amount of debt Zell has placed upon it.
That debt was not incurred to invest in the company’s product, or even physical plant. It was incurred solely to buy out Tribune Corp’s shareholders at an inflated share price and let Zell have his toy. It was the epitome of the bubble. And now it’s caught up with Zell. He’ll be fine. The employees are the ones who will suffer, as always. Basically, Zell has destroyed several great newspapers as part of an unwitting wealth transfer to various large Tribune shareholders.