Tribune Co. Mulling Bankruptcy

By Jon Fine
Business Week

Sam Zell, the real estate mogul who owns media conglomerate Tribune Co., has retained advisers to assist with a potential bankruptcy filing

The Tribune Co., the media conglomerate bought by real estate mogul Sam Zell in an extremely leveraged deal in December 2007, has hired advisers to assist with a potential bankruptcy filing, according to multiple published reports. The company continues to work feverishly to try to restructure its debt agreements with lenders, as the company's declining cash flow puts it in danger of being in default of its loan convenants.

It's by no means certain which course of action Tribune will choose, although the Wall Street Journal , which broke the news that Tribune had hired investment bank Lazard Ltd. and legal firm Sidley Austin to assist its explorations, reported a bankruptcy filing could come as early as this week.

Should Tribune file for bankruptcy, it would be the first recent major media deal birthed in the assumptions and debt markets of a previous era—an era that flourished as recently as 18 months ago—that has gone bankrupt in the current economic environment. Zell's $8.2 billion deal for Tribune (BusinessWeek, 7/30/08) left the company with $13 billion in debt.

Opposition from Day One

A Tribune spokesman did not return calls Sunday evening, but told Tribune's Chicago Tribune that "we haven't made any decision. We're looking at all of our options."

While Zell's deal, accomplished thanks to his use of an employee stock-ownership plan, had vocal critics from Day One, the degree to which events have turned against Tribune is astonishing. Its media businesses are dependent on advertising, which is severely affected by the kind of broad economic downturn the U.S. is now facing, and what might have been negotiated with its lenders in a more generous credit environment is now impossible.

Zell bought Tribune just as newspapers' businesses collapsed, and that collapse has been particularly pronounced for the big-city dailies found in Tribune's portfolio. And the business of newspapers continues to worsen: Tribune newspapers' ad revenues dropped 19% in the third quarter of this year.

Papers on the Block

In the past week, E W Scripps announced it was seeking a buyer for its Denver newspaper The Rocky Mountain News, and The New York Times reported that McClatchy had approached potential buyers for its Miami Herald. That major companies would consider selling in such a terrible environment speaks volumes as to how impaired an asset a big-city newspaper is.

Elsewhere in Tribune's portfolio, its TV station business hit headwinds so severe that even an election season marked by unprecedented political ad spending and a closely watched Summer Olympics failed to lift that business into positive territory. In the third quarter, Tribune's TV revenue fell 8%.

A cornerstone of Tribune strategy was to sell the company's Chicago Cubs Major League Baseball team, but that hasn't happened yet, and the financial downturn has hit asset valuations in sports teams along with everything else. Tribune had counted on selling the Cubs to give it breathing room with its interest payments. Around $1 billion in interest payments are due this year, and a $512 million debt payment is due next June.

Little Chance of a Deal

But an executive familiar with media deals and bankruptcy pointed out that having a seller potentially nearing bankruptcy may well delay any possible transaction until such a situation resolves itself.

Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger