Friday, December 12, 2008

Tribune allowed to make payments after bankruptcy filing

Associated Press

Reporting from Wilmington, Del. -- Tribune Co. was authorized Wednesday to make certain payments to employees, vendors and others as it works through a Chapter 11 bankruptcy reorganization.

Judge Kevin Carey said the company, which owns the Los Angeles Times and other newspapers, could pay $74 million that was owed to employees before Monday's bankruptcy petition was filed. That total includes a cap of $10,950 per person but excludes payments for healthcare, long-term disability, reimbursable expenses, workers' compensation and retiree medical care.

Judge Carey also approved orders allowing Chicago-based Tribune to use its existing centralized cash management system during the reorganization and to continue a securitization arrangement with Barclays Bank that will allow it to access an additional $75 million, for a total of $300 million.

The judge also authorized Tribune to pay various other pre-petition obligations, including $20 million to vendors, and $18 million in tax, licensing and similar obligations.

Tribune attorney James Conlan said the company was forced to seek bankruptcy protection because of dwindling advertising revenue. "There has been, to say the least, a precipitous decline in the advertising business generally," he said.

Tribune, which also owns 23 television stations and the Chicago Cubs baseball team, is the first major newspaper publisher to file for bankruptcy protection since the Internet plunged the industry into a struggle for survival.

Conlan told the judge that with the exception of two stock pledges, the Tribune operating companies have no secured debt, which leaves the company in "a strikingly good position" to reorganize intelligently.

The bankruptcy case involves 111 of Tribune's 128 entities, with the others, notably the Cubs, not part of the proceedings.

In an interview on the CNBC financial news channel, Tribune Chairman Sam Zell described the bankruptcy filing as a "preemptive" action to preserve assets and allow for a reorganization.

"In the end, my responsibility is to preserve the value of the company and to make sure that it will go on into the future," he said.

Zell said Tribune already had laid off hundreds of workers at its papers and reduced the number of pages published. Bankruptcy protection will allow it to focus on broader issues, he added, including consolidation.

He said the bankruptcy filing should not impede the planned sale of the Chicago Cubs, Chicago's Wrigley Field and other sports properties, which Tribune had been looking to sell to generate cash for a $593-million principal payment due in June.


A mind-boggling deal, a company's collapse, Sam Zell's judgment day


LOS ANGELES -- 'How did you go bankrupt?" Bill asked.

"Two ways," Mike said. "Gradually and then suddenly."

"What brought it on?"

"Friends," said Mike. "I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England."

The familiar dialogue above is from Hemingway's The Sun Also Rises, but it rings apt for the plight of Tribune Co., which filed for bankruptcy protection this week under the weight of $13-billion (U.S.) in debts and amid a collapse in revenues at its vast newspaper and television operations.

By the way, in this literary analogy, "Mike" is not Sam Zell, Tribune's billionaire CEO, but rather the thousands of Tribune employees whose stock ownership plan was jerry-rigged to fund the company's buyout last year.

Mr. Zell was the architect of the deal, but put up only around $300-million of his own money as a kind of option to later buy financial control of the company for as little as $500-million more.

Under the mind-boggling structure Mr. Zell and his advisers came up with, the Tribune ESOP owns 100 per cent of the shares.

What happens to them?

The Chicago Tribune said it most starkly, quoting an employee conference call with Mr. Zell:

"The ESOP, which Mr. Zell said a year ago offered employee "owners" the chance to share richly in Tribune Co.'s eventual success, could be wiped out, leaving thousands of Tribune Co. employees with no company retirement plan besides what they elect to save in a 401(k)."

Even less clear is who will end up owning Tribune's nine daily newspapers, including the namesake Tribune and the Los Angeles Times, as well as its 23 TV stations. There's already been plenty of venom directed at Mr. Zell, both before and after Tuesday's bankruptcy filings, and the question of how much he deserves is worth pondering.

The argument against Mr. Zell: Journalists, by nature, are not likely to be endeared by someone who has dubbed himself "the grave dancer," who seemed to have little regard for journalism and journalists, and who relied heavily on radio industry hacks.

I was wary at the time of his initial investment in Tribune, because I felt that he wasn't straight up about his role in the company: Press releases played up the employee ownership angle, but you had to plumb through securities filings to understand that Mr. Zell would essentially control the company through a series of vetoes without owning any of its equity.

The only people whose votes counted in the Tribune buyout were those of the company's former shareholders who approved it - employees had no say over whether they wanted the ESOP, nor any role in overseeing the company once it was taken private.

It also wasn't particularly reassuring that, after saying he had no plan to sell any of the company's papers, he swiftly unloaded Newsday. All of this led to a sense that buying Tribune was a bit of sport for a restless billionaire looking for a new challenge.

Mr. Zell paid a lot of lip service to running a "non-business" as a business. During his brief time in charge, there was plenty of asset-selling, cost-cutting and cosmetic revamping at his papers, but little clear evidence of improving the company's products.

The argument for Mr. Zell: There's a long tradition of media bosses who are not always politic but who lead successful news organizations - think Ted Turner at CNN, or even Rupert Murdoch in his stewardship so far of The Wall Street Journal. (Conrad Black, the now-incarcerated former press baron, used to openly ridicule the journalistic profession despite owning hundreds of papers.)

So don't penalize Mr. Zell too much for being rich and eccentric. As for the structure of the deal, it's worth remembering that the ESOP is something that was created expressly for the buyout, and it doesn't directly impact any pre-existing employee pensions or benefit obligations.

So, yes, the ESOP as it exists today could get wiped out, but given that the deal only closed last December, it's not as though the employees had anything to show for their phantom "ownership" anyway. From their perspective, failing now is almost certainly better than failing later.

The one thing that can't be disputed is Mr. Zell's contention that the advertising market has collapsed far more quickly and deeply than he or anyone else in these businesses predicted a year ago.

At least Mr. Zell was willing to try to fix the company - which is more than you can say for Tribune's well-compensated former managers or the Chandler family, whose frustration with said managers forced the company's sale.

A final thought that could help determine how Mr. Zell is ultimately remembered in this mess: He has pitched the bankruptcy filing as a "pre-emptive" move to preserve assets so that the company can keep operating.

It will be interesting to see if his unusual non-ownership control of Tribune means that he will either prosper at the expense of the employees or even remain in charge of what's left of the business when it emerges from its nightmare.

Richard Siklos is an editor-at-large at Fortune Magazine

1 comment:

Anonymous said...

What we need now is a bailout for newspapers. Not a blank check to soften the cushion for the likes of Sam Zell. No, let’s do it just like we’re doing it for the auto industry, and for the same reason. We must help newspaper journalism survive because it is vital to the Republic. But, only those newspaper companies that can develop a workable plan to quickly transport themselves into the digital age should be eligible for this bailout. And, the money should strictly go toward helping newspapers to stop killing trees and start being Internet only.

"… Were it left to me to decide whether we should have government without newspapers, or newspapers without government, I should not hesitate a moment to prefer the latter."

-- Thomas Jefferson