Tuesday, September 23, 2008
The company I work for was sold to a billionaire who took it private after the stock lost a large percentage of its' value. The almost $210,000 of my hard earned cash deposited in the 401k and Employee Stock Purchase Plan cashed out at about $70,000. The former CEO got something like $60,000,000 as a severance package. Where's my bailout?
America's financial institutions lent out more money than they could afford to pay back if the people defaulted on the loans, then refused to renegotiate the loan terms to help folks keep their homes.These same big companies respond to people having trouble paying their bills by raising credit card interest rates to 28.9% and more if a payment is late and forcing homeowners into foreclosure. Where's my bailout?
Now these same financial institutions that have shown no compassion to working people in distress come to those same hard working, overextended taxpayers and ask for a $700 BILLION dollar bailout. Where's my bailout?
$700 BILLION dollars, that's about an additional $2,000 from every American, without an offer to reduce executive compensation, without changing lending terms on mortgages and credit cards, without offering to forgive the difference when a homeowner is forced to sell their home for less than the current mortgage, and without offering relief from high interest rates nor foreclosure. Where's my bailout?
Monday, September 22, 2008
With a note From Bob Daraio
I was recently asked by a visiting Tribune executive, what the union does for me.
I thought I'd respond here. I'm an IBEW Local 1212 represented video engineer at WPIX, a Tribune owned TV station in New York.
Even though we are the lowest paid union engineers in NYC, with Fox5 and MY9 both paying 25% higher wages, with other stations having even greater disparity in wages, even though our freelancers have not had a raise in at least seven (7) years and get no pension and welfare contribution, even though the severance package is better for the non-union employees and they get more vacation days, we still make substantially more money than the non-union workers at WPIX. Also, the grievance and arbitration rules in our union contract give us some small protection from management abuse that our non-represented colleagues do not have.
As to what advantages the employer gets from having a union, an AFL/CIO article posted below says it all:
According to Professor Harley Shaiken of the University of California-Berkeley, unions are associated with higher productivity, lower employee turnover, improved workplace communication, and a better-trained workforce.
Prof. Shaiken is not alone. There is a substantial amount of academic literature on the following benefits of unions and unionization to employers and the economy:
- Product or service delivery and quality
- Solvency of the firm
- Workplace health and safety
- Economic development
According to a recent survey of 73 independent studies on unions and productivity: “The available evidence points to a positive and statistically significant association between unions and productivity in the U.S. manufacturing and education sectors, of around 10 and 7 percent, respectively.”
Some scholars have found an even larger positive relationship between unions and productivity. According to Brown and Medoff, “unionized establishments are about 22 percent more productive than those that are not.”
Product/ Service Delivery and Quality
According to Professors Michael Ash and Jean Ann Seago, heart attack recovery rates are higher in hospitals where nurses are unionized than in non-union hospitals.
Another study looked at the relationship between unionization and product quality in the auto industry. According to a summary of this study prepared by American Rights at Work:
“The author examines the system of co-management created through the General Motors-United Auto Workers partnership at the Saturn Corporation…The author credits the union with building a dense communications network throughout Saturn's management system. Compared to non-represented advisors, union advisors showed greater levels of lateral communication and coordination, which had a significant positive impact on quality performance.”
Several studies in have found a positive association between unionization and the amount and quality of workforce training. Unionized establishments are more likely to offer formal training. This is especially true for small firms. There are a number of reasons for this: less turnover among union workers, making the employer more likely to offer training; collective bargaining agreements that require employers to provide training; and finally, unions often conduct their own training.
Professor Shaiken also finds that unions reduce turnover. He cites Freeman and Medoff’s finding that “about one fifth of the union productivity effect stemmed from lower worker turnover. Unions improve communication channels giving workers the ability to improve their conditions short of ‘exiting.’”
Labor’s enemies assert that unions drive employers out of business, but academic research refutes this claim. According to Professors Richard Freeman and Morris Kleiner, unionism has a statistically insignificant effect (meaning no effect) on firm solvency. Freeman and Kleiner conclude “unions do not, on average, drive firms or business lines out of business or produce high displacement rates for unionized workers.”
Workplace Health and Safety
Employers should be concerned about workplace health and safety as a matter of enlightened self-interest. According to an American Rights at Work summary of a study by John E. Baugher and J. Timmons Roberts:
“Only one factor effectively moves workers who are in subordinate positions to actively cope with hazards: membership in an independent labor union. These findings suggest that union growth could indirectly reduce job stress by giving workers the voice to cope effectively with job hazards.”
Unions also play a positive role in economic development. One good example is the Wisconsin Regional Training Partnership, “an association of 125 employers and unions dedicated to family-supporting jobs in a competitive business environment. WRTP members have stabilized manufacturing employment in the Milwaukee metro area, and contributed about 6,000 additional industrial jobs to it over the past five years. Among member firms, productivity is way up--exceeding productivity growth in nonmember firms.”
 Harley Shaiken, The High Road to a Competitive Economy: A Labor Law Strategy, Center for American Progress, June 25, 2004, pp. 7-8. http://www.americanprogress.org/atf/cf/%7BE9245FE4-9A2B-43C7-A521-5D6FF2E06E03%7D/unionpaper.pdf
 Christos Doucouliagos and Patrice Laroche, “The Impact of U.S. Unions on Producivity: A Bootstrap Meta-analysis,” Proceedings of the Industrial Relations Research Association, 2004. See also, by the same authors, “What Do Unions Do to Productivity: A Meta-analysis,” Industrial Relations, Volume 42 Issue 4 October 2003:
 Charles Brown and James L. Medoff, “Trade Unions in the Production Process.” Journal of Political
Economy, vol. 86, no. 3 (June 1978): 355–378.
 Michael Ash and Jean Ann Seago, “The effect of registered nurses' unions on heart-attack mortality,” Industrial and Labor Relations Review, Vol. 57, No. 3 (Apr. 2004), pp. 422-442.
 Saul A. Rubinstein, “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review, Vol. 53, No. 197 (January 2000).
 Harley J. Frazis, Diane E. Herz and Michael W. Horrigan, “Employer-Provided Training: Results from a New Survey.” Monthly Labor Review (May 1995): 3–17.
 Harley Shaiken, cited earlier, quoting Richard Freeman and James Medoff, What Do Unions Do? New York, Basic Books, 1984.
 Richard B. Freeman and Morris M. Kleiner, “Do Unions Make Enterprises Insolvent?” Industrial and Labor Relations Review, vol. 52, no. 4 (July 1999): 510–527.
 John E. Baugher and J. Timmons Roberts, “Workplace Hazards, Unions and Coping Styles.” Labor
Studies Journal, Vol. 29, No. 2 (Summer 2004).
 Annette Bernhardt, Laura Dresser, and Joel Rogers, “Taking the High Road in Milwaukee: The Wisconsin Regional Training Partnership.” Working USA, Vol. 5, Issue 3 (January 31, 2002).
Who knew that Sam Zell -- more likely the thin-skinned Randy Michaels -- cared so much? First, check out the language of the email that Zell sent out to let employees know about the lawsuit:
There is a difference between questioning authority or challenging the "business as usual attitude," and maligning the company in public. That's just bad judgment and does no one any good. It's a distraction that's unnecessary.Sam, the time for "acting" like partners ended when you cursed at us; when you denigrated us; when you told us we were overhead; when you fired reporters; when you cut back newshole; when you deprived our readers of information about their lives to make the payments on your over-leveraged debt.
We are partners. We need to act like it.
Partner, in case your dictionary knowledge is as lacking as your lackey's grammatical knowledge, is a word which implies equality. But you have never acted as an equal.
We have no power. We have no say. We have never been consulted in a single action that you or any of your cronies have taken in dismantling the Tribune Co. So stop fucking call me your partner. It's patronizing. It's demeaning. And it's wrong.
Then there's the language of the actual press release. The lawsuit is filled with "frivolous and unfounded allegations." Yet Zell mentions not a one. And then he declares himself "outraged."
I don't honestly know where this lawsuit will lead. And I fear that, like most lawsuits, it will be two, three, four years before we find out, by which time Sam will have looted the pension, driven off or fired the best workers and turned the Tribune Company into a television network featuring Bozo 90210 and a few newsletter-sized newspapers.
But I do know who should be outraged. And I know it's not Sam Zell.
The attorneys response to Zell, in a similar vein, follows:
In his email to Tribune employees earlier today, Sam Zell dismissed the allegations against him and his co-fiduciaries as “frivolous and unnecessary.” “We are partners,” the email continued, “we need to act like it.”
This statement is a standard Zell response: lacking in specifics and filled with vitriol. The complaint is detailed and the allegations are correct. The complaint asserts that the Tribune ESOP has not provided the rank and file employees with a detailed justification for the Zell acquisition. Ask Sam: where’s the detailed justification?
The Tribune pension administrators have not provided the retired Tribune employees with an explanation as to why the pension plan was supposedly over funded by $400 million. This explanation is particularly necessary given the current downturn in the stock market. Ask Sam: where’s the explanation? The directors have established a conflict of interest policy for related party transactions. Ask Sam: explain how the conflict of interest policy has been followed with HIS relatives?
The current and former Tribune employees are not “all in this together” with Sam Zell. The rank and file employees have their jobs and their current and future retirement plans tied up by the machinations of Zell and his co-fiduciaries. Their salaries are low and they see many of their colleagues being let go on a monthly basis.
On the other hand, Sam Zell has billions of dollars and does not have his livelihood at stake. For example, Zell’s upcoming birthday party will feature The Eagles. Ask Sam: how many of his “partners” are spending their birthdays in a similar fashion?
Speaking of “maligning the company in public,” we ask that journalists covering this story consider Sam Zell’s prior comments denigrating print journalism. Imagine if the Chairman of Procter & Gamble stated: “I don’t use Ivory Soap. I hate Ivory Soap.” Despite it all, these newspapers are continuing to produce great journalism.
Zell’s comments fail to acknowledge the billions of dollars in debt he caused the Tribune Company to incur, necessitating both the layoffs and the diminishing content of the Company’s newspapers. It is unfortunate that, in typical fashion, Sam Zell is ignoring the rights and neglecting the best interests of the hard-working Tribune employees, whom he cynically refers to as “partners.”
Rather than working with his “partners,” he is tearing the company down, brick by brick, and selling it off, in an effort to pay down the massive debt he improperly encumbered the company with. We look forward to cutting through Zell’s self-serving, out of touch rhetoric and fighting for our clients – the Tribune’s real and rightful owners – in court.
In these turbulent times, fiduciaries must act in the best interests of their employees, particularly when they are the “owners” of the company. Zell and his co-fiduciaries have utterly failed to do so as more specifically described in the complaint.
Partners don’t treat partners like Zell treats the Tribune employees.
Friday, September 19, 2008
Pub. Date: Sep 16 2008 5:16 PM
These agreements will enable the stations to stagger news, programming and community affairs programs so that viewers have more options to fit their increasingly hectic lifestyles. In Denver, the agreements will involve KDVR (Local TV/FOX) and KWGN (Tribune/CW). In St. Louis, KPLR (Tribune/CW) and KTVI (Local TV/FOX) will enter a shared services arrangement.
The agreements will allow the stations to locate in the same facility, use combined news operations and share certain programming. In St. Louis the stations will co-locate in the offices of KPLR and use one news room to produce nine hours of news every day, with no overlap.
"People today need local news programs throughout the day, not just in the morning, the early evening and at 9 or 10 pm.," said Spencer Koch, Market Manager for St. Louis and long time general manager of KTVI. "The June and Ward Cleaver world of working 9 to 5, with dinner at 5:30 while tuning in the local news is long gone. By joining with KPLR, we can combine the best of both stations in news gathering and production. If the people of St. Louis want to watch news, they will find it on Channel 2 (KTVI) or Channel 11 (KPLR). We are working to our audience's schedule, not ours."
KPLR recently launched an hour-long local newscast at 7 p.m. News at 7 is one of the only prime time newscasts in the country, and the only one in St. Louis.
In Denver, both stations will operate out of the KDVR studios.
"Both KDVR (FOX Channel 31) and KWGN (CW Channel 2) have a strong local presence in the morning," said Dennis Leonard, Denver Market Manager. "We will continue to go head to head on our morning newscasts and focus on delivering more options for news viewing in the noon, 5:30 and late news slots. Both of the stations have strong, loyal viewers. We will take the best of both newscasts and repackage it for each station."
Ed Wilson, President of Tribune Broadcast, added, "These arrangements enable us to create efficiencies between the FOX and CW affiliates in each market to serve the local community like never before. In each case, we can leverage the strengths of two great stations to serve viewers with more news and the most popular entertainment programming. On top of that, we can provide advertisers the ease and efficiency of one-stop shopping, delivering even greater reach."
Local TV CEO Bobby Lawrence commented, "The television industry is on the cusp of change. The internet, mobile, TiVo and alternative distribution channels are growing forms of content distribution. As our audience finds new ways to get content we need to streamline our delivery costs and provide more local programming, news and community information. With Tribune as our partner, we can streamline the back office and news gathering costs, while still giving viewers access to two great and very different stations and content. It is the way of the future, and we are excited to be a part of TV's evolution."
Working together, the stations will command the largest television news gathering operations in both Denver and St. Louis. Viewers and advertisers will also benefit from an unprecedented primetime programming line-up, including such shows as "American Idol," "The Simpsons," "America's Next Top Model," and the recently launched "90210." It is anticipated that the agreements will be effective October 1.
"We offer something for everyone while we cross-promote programming and news on each station," adds Wilson. "In addition we'll reduce our overall operating costs and use the savings to enhance the technology at each of these stations, build out our HD capabilities, and claim the #1 position as the most locally-focused broadcasters in each market."
Local TV LLC is a broadcast holding company created in 2007 to acquire nine heritage television stations in eight mid sized markets. In 2008, the company acquired eight Fox affiliates previously owned by News Corp. Local TV is owned by Oak Hill Capital Partners, management, and a consortium of bankers and high yield lenders who are as enthusiastic about our future as we are. Stay tuned.
TRIBUNE is America's largest employee-owned media company, operating businesses in publishing, interactive and broadcasting. In publishing, Tribune's leading daily newspapers include the Los Angeles Times, Chicago Tribune, The Baltimore Sun, Sun Sentinel (South Florida), Orlando Sentinel, Hartford Courant, Morning Call and Daily Press. The company's broadcasting group operates 23 television stations, WGN America on national cable, Chicago's WGN-AM and the Chicago Cubs baseball team.
Popular news and information websites complement Tribune's print and broadcast properties and extend the company's nationwide audience. At Tribune we take what we do seriously and with a great deal of pride. We also value the creative spirit and are nurturing a corporate culture that doesn't take itself too seriously.
CONTACT: Gary Weitman of Tribune Company, +1-312-222-3394,email@example.com; or Pam Taylor of Local TV LLC, +1-859-448-2700,firstname.lastname@example.org
Web site: http://www.tribune.com/
By Lauren A.E. Schuker, The Wall Street Journal
The results of a pivotal election within the Screen Actors Guild on Thursday could pressure the union's leadership to resolve a contract dispute with the Hollywood studios.
The actors' contract expired in June, but talks have stalled with the studios amid sparring within the union that has prevented a strike from going forward. In this week's board election, a dissident faction appears to have won enough seats to wrest control away from a rival faction that has controlled SAG for many years.
At stake in the election was whether "MembershipFirst," the group that currently controls SAG and backed President Alan Rosenberg, would continue to hold its voting majority on the union's major board -- or whether that coalition would cede control to a rival group of Hollywood actors that ran under the banner "Unite for Strength" and which has advocated unifying SAG with its sister union, the American Federation of Television and Radio Artists.
SAG members voted up six candidates backed by Unite for Strength for the 11 open seats on SAG's national board of directors, switching the voting majority away from MembershipFirst, according to estimates.
With new leadership in place, SAG may make a deal with the studios sooner than expected. Ned Vaughn, a newly elected Hollywood board member, says that the new board leadership -- which supports a merger with the American Federation of Television and Radio Artists, which has already accepted a deal from the producers -- is eager to start talks with the studios again.
The infighting at the union has essentially paralyzed contract talks with the studios. The possibility of a strike in July came and went, and now studios are producing television shows and films at a normal pace. The studios' bargaining arm has been waiting for the election results in hopes that a change in leadership will quickly resolve the contract stalemate.
Write to Lauren A.E. Schuker at email@example.com
SAG, AFTRA stand with ACTRA
Unions show support for Canadian guild
Variety article By DAVE MCNARYIn a rare show of unity, SAG and AFTRA have announced jointly that they'll support ACTRA should the Canadian actors union strike against the ad industry.
The Screen Actors Guild and the American Federation of Television and Radio Artists issued the statement of support Wednesday for the Alliance of Canadian Cinema, Television and Radio Artists. Move came a day after ACTRA announced it was seeking a strike authorization from its members.
"We believe that it is critical that the industry meets them halfway and ensures that ACTRA members receive just compensation for their creative performances and for their willingness to make modifications where appropriate," the unions said. "In the event that ACTRA is forced to call a strike, SAG and AFTRA will take all actions legally possible to support striking ACTRA members, including instructing our members to refuse to accept any engagements from struck employers, particularly any attempts by those employers to relocate productions to the U.S. or other locations."
ACTRA's current deal expired June 30. A government mediator joined negotiations in July and talks will resume Sept. 25.
SAG and AFTRA have been at odds this year over the feature-primetime contract with AFTRA splitting from joint bargaining with SAG and then negotiating a primetime deal, which was ratified by members over SAG's objections. The two unions agreed last month to a six-month extension of their commercials contract until March 31; they've informally agreed to joint negotiations on the ad pact but have not made that agreement official yet.
Wednesday, September 17, 2008
Sam Zell calls allegations frivolous and unfounded.
Tribune Co. Chief Executive Sam Zell on Wednesday said he was "outraged" by a lawsuit filed this week that alleges his management of the business that owns the Los Angeles Times, Chicago Tribune and other media properties is destroying the value of the company.
Zell also said " I hope every partner in this company is as outraged as I am at having to spend the time and money required to defend ourselves against it."
Buzzmachine's Jeff Jarvis took the suit's plaintiffs to task, contending that Zell is being made a scapegoat for wider institutional problems in the newspaper business. Jarvis: " The Times veterans should not be suing Zell. They should be suing themselves."
But over at Portfolio, Jeff Bercovici defends the suit: "doesn't that still leave you with the central question of whether Zell made improper use of the ESOP structure, raided employee pensions, and all that? Are Tribune employees supposed to surrender their legal rights because their bosses?or predecessors' bosses?showed a lack of vision?"
The suit, filed in U.S. District Court in Los Angeles, alleges Zell and former Tribune CEO Dennis FitzSimons devised a plan to take the company private to enrich themselves to the detriment of workers. It seeks class-action status on behalf of Tribune Co. employees.
He acquired control of Tribune Co. in December in a deal that left the company with $12.5 billion in debt.
Tribune Co. has cut about 10 percent of its workforce since Zell arrived. Plaintiffs want to recover losses to the employee stock ownership plan, formed after the takeover. They also want to replace Zell, Tribune's board and the ESOP trustee.
Sam Zell sent staffers the following e-mail this afternoon:
We are about to release a statement on the lawsuit filed yesterday by a staffer at the LA Times and several former Times employees. I want to share it with you first, but I also want to stress that as we work to fix our company, we are all in this together.
As newspaper advertising revenues have declined severely over the last several months, we've had to take some tough steps. We're not alone, of course -- the entire publishing industry is trying to deal with the challenges posed by a tough advertising environment and an economy in turmoil. At Tribune, we're making tremendous progress-reinventing our newspapers, expanding television news, growing WGN America, and developing a new Internet platform. We're being watched and imitated.
The overwhelming majority of our employees have risen to the occasion -- they are working extremely hard, innovating as never before, trying new things, pushing the envelope. They are using their own best judgment and questioning authority when they need to -- something employees at this company rarely did in the past.
But there is a difference between questioning authority or challenging the "business as usual attitude," and maligning the company in public. That's just bad judgment and does no one any good. It's a distraction that's unnecessary.
We are partners. We need to act like it.
Official Tribune statement about the staffers' lawsuit follows:
TRIBUNE STATEMENT ON CLASS ACTION LAWSUIT
CHICAGO, Sept. 17, 2008 -- Tribune Company today issued the following statement from Chairman and Chief Executive Officer Sam Zell:
"The lawsuit filed yesterday is filled with frivolous and unfounded allegations, and I hope every partner in this company is as outraged as I am at having to spend the time and money required to defend ourselves against it. The media industry is in crisis, the advertising environment is extremely difficult and the economy is in turmoil.
The overwhelming majority of our employees have taken up the challenge --they are working hard, leading by example, and devoting themselves to re-inventing our businesses by developing new and innovative products for our readers, viewers and advertisers. As a company we are attacking our problems and revolutionizing the media industry.
"This lawsuit is a mere distraction, and we will work quickly to see that it is dismissed. It will not deter us from completing the work ahead."
As a newspaper friend in Los Angeles writes, "I've been waiting for this shoe to drop."
This week the bitching about Sam Zell moved out of the blogosphere and into the courtroom. A Pulitzer-winning columnist for the LA Times and four former Times writers filed a class-action suit against Zell and the Tribune Company he runs. "Rather than acquire and operate the Tribune Company in the best interests of its employee-owners," the suit begins, "Sam Zell exacted severe, long-lasting damage to an institution that citizens in a democracy rely on and require to effectively speak truth to power."
The suit accuses Zell and "his accessories" on the Tribune Company board of threatening to destroy the company and the newspapers it own, "doing so illegally, without consideration for the employee-owners, without respect for the institution, and with a focus on liquidating company assets to line their own pockets." And according to plan -- for the suit says Zell took the company private "with the intention of breaking up and selling the assets because he saw a collection of assets worth billions of dollars that he could purchase . . . with a minimal outlay of his own money."
The ingeniously structured deal by which Zell took over the company last year made its employees, in the guise of a Tribune ESOP (Employee Stock Ownership Plan), its nominal owners. "The deal included borrowing billions against the assets -- the Tribune Company's debt went from less than $4 billion to nearly $13 billion overnight," says the suit. "Zell took over a highly valuable Company, imposed on it the most encumbered balance sheet in the newspaper industry, and avoided any real personal risk or responsibility, all while enjoying the benefits of a tremendously valuable tax structure and letting employee 'owners' bear the damaging consequences going forward."
The immediate consequences, according to a news release from the plaintiffs, are that "Zell has de-funded employees' retirement packages, raided the employee pension fund for more than $400 million, and eliminated more than a thousand Tribune Co. jobs. Meanwhile, Zell and his band of publishing rookies are wrecking the company's marquee properties," the Times and the Chicago Tribune among them."Without the staggering debt load from the Zell deal, the Los Angeles Times would be solidly profitable today -- without eviscerating news gathering operations."
The suit alleges that Zell breached his fiduciary duty to administer the Tribune ESOP "solely in the interests of the employee-owners" by orchestrating an "imprudent purchase" of the company at an extravagant price. As a consequence, "Zell redirected the Company's operations from running newspapers to servicing the new debt." (The emphasis is the suit's.)
As the news release puts it, "Employees were never asked if they wanted to own Tribune Company. They had no opportunity to question the wisdom of saddling a media company with $13 billion in debt at a time when the industry faces serious challenges. Even though they are nominally the owners, they have no voice on the company's board and no say in its management."
The named plaintiffs are Dan Neil, who's won a Pulitzer writing his auto column for the Times; and former Times writers Corie Brown, Walter Roche Jr., Myron Levin, Henry Weinstein (a former legal affairs writer who now teaches law), and Jack Nelson (who used to be the paper's Washington bureau chief). They say their only goals are to protect the company's pension and retirement funds, remove Zell and all other members from the Tribune Company board, and put a representative of the employees on that board.
It's no surprise that this suit originated at the Los Angeles Times and focuses on the perceived degradation of the Times. That city and that paper have always found Chicago and Zell hard to swallow. If his hometown has cut Zell some slack as possibly the Tribune's last hope, to LA he's simply a rich outsider contemptuous of the business he bought entry to.
The lawsuit, which seeks class-action status, alleges that Zell and others have breached their fiduciary duties to beneficiaries of the Tribune Employee Stock Ownership Plan.
One current and five former Tribune Co. employees, including former legal writer Henry Weinstein, accused the company and Chief Executive Sam Zell in the lawsuit of mismanaging the newspaper-and-television concern, the latest sign of worker protest against Mr. Zell's oversight.
The suit was filed by Joseph Cotchett of Cotchett Pitre & McCarthy in Burlingame, Calif.
The lawsuit, filed in a Los Angeles federal court, alleges Tribune and Mr. Zell have failed to uphold their fiduciary duty to the company's employee stock-ownership plan, Tribune's majority owner. The lawsuit also claims Mr. Zell and other Tribune officials have improperly raided worker pension funds.
"Zell and his accessories threaten to destroy the Tribune Company and its assets," the lawsuit says.
The suit targets the $8.2 billion buyout that made the employee stock plan the majority owner of the company. Zell invested only about $315 million in exchange for a promissory note and the right to buy 40 percent of the company, the Wall Street Journal story says. The suit also says pension assets have been tapped to fund severance payments to employees.
"After engineering the transaction which essentially let someone buy an $8 billion house without making down payment, Zell redirected the company's operations from running newspapers to servicing the new debt," the complaint says.
The suit also contends Zell has destroyed the integrity of the Tribune brand by blurring the line between editorial and advertising.
Mr. Zell, the chairman and chief executive of Tribune, took control in December in an $8.2 billion deal that took the company private but tripled its debt at a time of falling revenue. Since then, the company has eliminated more than 1,000 jobs, and sold assets to raise capital and meet debt payments. Its credit has been downgraded.
Last month, Tribune reported a 15 percent drop in advertising revenue and appointed former DirecTV chief executive officer Eddy Hartenstein to run the LA Times.
The unusual takeover turned Tribune’s stock over to an employee stock ownership plan, or ESOP, so the employees technically became the owners. But those employees were given no say on the deal, no seats on the board and no ability to sell shares for years to come.
“By orchestrating what was clearly an imprudent transaction,” the lawsuit states, Mr. Zell and the former Tribune management “breached their fiduciary duties to the employee-owners.”
It adds that Mr. Zell and his aides have compounded that breach in the way they have run the company, and by using money from the employees’ pension fund to pay for buyouts and severance. The complaint seeks unspecific monetary damages and the removal of Mr. Zell and other board members.
The complaint was filed in Federal District Court in Los Angeles and seeks class-action status to represent employees across the company. The plaintiffs include some of the best-known Times writers of the last generation, including Dan Neil, a Pulitzer Prize-winning automotive writer; Jack Nelson, a former Washington bureau chief; and Henry Weinstein, a longtime legal affairs reporter.
In addition to Mr. Zell, the suit named as defendants the company as well as current and former board members. It accused the former management of profiting from a deal that it knew would cripple the company.
And the suit claims that contrary to public statements, Mr. Zell planned all along to sell Tribune assets and has acted without regard to the long-term health of the company or the interests of its owners, the employees.
“His statements have not matched his actions,” Mr. Neil said.
In March, 2007, Tribune announced the deal with Mr. Zell, who would eventually put up $315 million of his own money to take control of a company that owns, along with The Times, The Chicago Tribune, The Baltimore Sun and a dozen other papers, 23 broadcast television stations and other assets.
Several analysts have said the price paid for Tribune was too high, and it left the company too heavily leveraged.
Asked why the employees did not sue last year, before the deal was completed, Mr. Neil said: “It was purposely obtuse, leaving people bewildered as to what was going on. It was very difficult to know who to sue or what to claim.”
A spokesman for Tribune, Gary Weitman, said, “We have not read the lawsuit and will decline comment.”
The Summary, from the release:
...since completing his takeover of the Tribune Company in December 2007, Sam Zell’s illegal and irresponsible actions and public statements have damaged the reputation and business of the company he purports to want to preserve. According to the filed complaint, through both the structure of his takeover and his subsequent conduct, Zell and his accessories have diminished the value of the employee-owned company to benefit himself and his fellow board members. It alleges further that through their destructive management and self-dealings at the expense of employees, Zell and his co-fiduciaries have repeatedly breached their fiduciary duties to beneficiaries of the Tribune Employee Stock Ownership Plan (ESOP).
Full Release Text:
LOS ANGELES, Sept. 16, 2008 -- Today current and former employees of the Los Angeles Times and the Tribune Company filed a class-action lawsuit in federal court against Sam Zell, a Chicago billionaire real-estate speculator who in December 2007 took control of the Tribune Company in a controversial deal that has mired the company in more than $13 billion of debt. The lawsuit was filed by Joseph Cotchett and Philip Gregory of the law firm of Cotchett, Pitre & McCarthy.
As current and former members of the Employee Stock Option Plan that owns 100% of the Tribune Company and participants in various Tribune retirement plans, the plaintiffs filed this action alleging it is time to call the Zell-orchestrated acquisition what it really is: A scam. The lawsuit contends that, since the inception of the deal, it appears that Zell and his accessories have planned to enrich themselves, tax-free, by perverting laws passed by Congress intended to benefit rank and file American workers.
The employee-owners of Tribune Company have everything, including their retirement plans, at great risk and little to gain in this deal, while Zell has everything to gain and little at risk. Among the deal's outrages outlined in the complaint: Zell has set up a mechanism to buy 40% of the company – valued at more than $8 billion at the time the ESOP took ownership – for as little as $500 million. It’s a classic grift, played out under the cover of legal technicalities. The real losers in this deal, however, are Americans who rely on news and information collected and disseminated by the respected Tribune news organizations.
The plaintiff-employees in this suit do not seek to enrich themselves. Rather, their announced intentions are: to protect Tribune Company’s pension and retirement funds; to give the employee-owners a place at the table with regard to management of their assets; and to remove Zell and his cronies from the Tribune Company’s board in order to save what is left of a still great news gathering operation.
In the 1970s and later in the 1980s when Senators Bob Dole (R-Kansas), Russell Long (D-Louisiana) and others in Congress spearheaded efforts to promote ESOPs with generous tax benefits, the intent was to empower employees eager to own and manage the companies where they work. When it comes to Tribune Company’s ESOP, nothing could be further from the truth. Employees were never asked if they wanted to own Tribune Company. They had no opportunity to question the wisdom of saddling a media company with $13 billion in debt at a time when the industry faces serious challenges. Even though they are nominally the owners, they have no voice on the company’s board and no say in its management.
When Zell hung “You own this place now” banners at the Los Angeles Times, employees could not know the high price they would pay for this “privilege.” According to the complaint, Zell has de-funded employees retirement packages, raided the employee pension fund for more than $400 million, and eliminated more than a thousand Tribune Co. jobs.
Meanwhile, Zell and his band of publishing rookies are wrecking the company’s marquee properties – including the Los Angeles Times, the Baltimore Sun, and the Chicago Tribune – alienating readers by launching aimless redesigns while dramatically cutting coverage. Seemingly ignorant of journalistic ethics, they have, for instance, turned control of the Los Angeles Times Magazine over to the advertising staff, with no indication to the reader that this product is now a “pay-to-play” advertorial. All the while, revenues have continued to decline.
The saga of the Los Angeles Times follows a familiar path in American media. Los Angeles’ Chandler family controlled the newspaper for generations, making it the flagship of the powerful Times-Mirror Company. In 2000, the Chandler heirs merged the family-controlled company with the Chicago-based Tribune Company. Even considering the debt to finance the merger, the company maintained profit margins in excess of 20%.
Despite a slowing economy, a precipitous drop in ad revenue in the real estate, classified, and automotive sectors along with the de-monetizing of content put on the web and the spiraling cost of newsprint – the Tribune Company continued to be profitable throughout this decade. Without the staggering debt load from the Zell deal, the Los Angeles Times would be solidly profitable today – without eviscerating news gathering operations.
It is flat wrong to regard the Tribune Company's troubles as the death throes of the newspaper industry. Americans are not rejecting the industry’s editorial product. The Los Angeles Times has millions more readers than it did a few years ago – over 20 million discrete readers at latimes.com in August 2008. In that month alone, the paper chalked up more than 120 million page views. Its besieged editorial staff continues to produce some of America’s finest journalism.
The media landscape is changing and, yes, newspapers are just learning how to navigate this new world. Unfortunately, current management is making things worse, led by Zell and his Chicago gang who can't shoot straight. Zell does not consider himself a publisher and has shown nothing but contempt for journalism. He notoriously said “F… you” to an employee-photographer who dared question his leadership. Speaking to the Washington bureau of the Los Angeles Times, Zell referred to the staff as “overhead, not producing any revenue.” Zell’s history is specializing in profiting from the purchase and sale of distressed properties. He has said he expects to make a fortune for himself during his tenure at the Tribune Company. And, as it stands, he can do that while leaving the coffers of the Tribune ESOP empty and the readers of the Los Angeles Times, the Chicago Tribune and Tribune Company’s other news outlets without an authoritative local source for news and information.
Should these institutions, vitally important to the life of the nation – indeed, never more so – be allowed to fall victim to ruthless corporate raiding and the pump-and-dump machinations of predatory “investors”? News organizations are both businesses and public trusts. A free press is the only business stipulated by the Constitution. No other entity – no website, no blogger – is on the horizon to replace the boots on the ground around the world providing Americans with the information we need to function in a global economy. The Los Angeles Times, alone, spends $2 million a month to support its Baghdad bureau, making its war coverage among the finest in the world. If Zell and his cronies continue to cut the staffs of these news organizations, it means inevitably that they will give their readers less content that is valuable to them. As these newspapers become less valuable to readers, they become less valuable to advertisers as well.
To that point, Zell and his cronies say they plan to close the Los Angeles Times’ Baghdad bureau.
-- Dan Neil, Corie Brown, Henry Weinstein, Walter Roche, Myron Levin & Jack Nelson
For more information contact:
Attorney for the Plaintiffs Plaintiffs’ spokesman
Joseph W. Cotchett Dan Neil
Philip L. Gregory (818) 508-1000
Cotchett, Pitre & McCarthy
San Francisco Airport Office Center
840 Malcolm Road, Suite 200
Burlingame, CA 94010
Release. The full 115-page complaint.
Carl Tobias, a professor at the University of Richmond School of Law said of the complaint. "I can't tell you they're going to win, but from what little I've seen, I think they have a credible claim, at least," he said.
For now, the main hurdle will be convincing the judge to grant the plaintiffs class certification. To do that, they'll have to show the issues are common to all the plaintiffs and there's efficiency in hearing all their complaints together. "I think they'll be able to satisfy it," says Tobias.
Friday, September 12, 2008
I'd love to be able to afford to vote for John McCain, his patriotism and courage, as shown by his military service and bravery as a POW, is without question. But I don't earn enough money to afford to retire without Social Security, a program that will be greatly diminished when he privatizes it and removes the guarantee of a minimum monthly retirement check from my future.
I can't afford four more years of business as usual, 28.9% credit card interest rates, 60 million dollar severance packages for CEOs that betray their fiduciary responsibilities and run their companies into the ground, tax breaks for the rich at the expense of the ever shrinking middle class, and troops going in harm's way to protect democracy, while their families are on food stamps and their homes are in foreclosure.
I'd love to be able to afford to vote for John McCain. I respect the way he has fought to stop mud slinging and run an issue based presidential campaign. I wish I could cast my vote for Senator John McCain, but, his support for continued tax cuts for the wealthiest citizens and corporations, support for the loss of jobs to overseas companies, his lack of support for organized labor, and complete disregard for the plight of working Americans, leaves me no choice, but to ever so reluctantly, take a chance on change, take a chance perhaps a less experienced choice, and vote for Senator Barak Obama.
Tuesday, September 9, 2008
The turnaround maven should have seen the problems ahead in the newspaper industry. His blind side may cost Tribune Co. its very life
"It's the deal from hell," says Sam Zell, never one to mince words. "And it will continue to be the deal from hell until we turn it around." Zell is talking, of course, about his $8.5 billion purchase of Tribune Co. in December 2007, a transaction that's shaping up to be one of the most disastrous the media world has ever seen. Zell is a real estate tycoon, and his plush office reflects his decades of success: Giant even by CEO standards, it brims with paintings and statues and looks out on a private garden above the Chicago River. One item that stands out among the clutter is an upside-down map of the world, a prop presumably intended to convince visitors that they're in the presence of an iconoclast. Zell, 66 and fiercely devoted to blue jeans, has burnished that image carefully over the years.
Were it not for the Tribune debacle, there would be no reason to question Zell's brilliance as a businessman. He describes himself, immodestly, as a "grave dancer" who buys properties at fire-sale prices and resells them for a profit. His biggest coup came in late 2006, when he orchestrated a bidding war for his real estate trust, Equity Office Properties. EOP eventually went to Blackstone Group (BX) for $39 billion, in what was then the biggest leveraged buyout in history. Weeks later he thumbed his nose at the deal making world with a satirical song, posted on the Web, that predicted the credit crunch soon to sweep the globe. It seemed he could do no wrong.
Then Zell bought Tribune and stumbled into a calamity of plunging sales and rising costs. He had expected only single-digit declines in newspaper ad revenue. Turns out he was off by a factor of two or three. "If current trends in advertising are permanent," he says, "we have a really serious problem."
He should have seen it coming. Tribune comprises eight newspapers, including the Chicago Tribune, Los Angeles Times, and Baltimore Sun, which together generate 76% of the company's revenues; more than 50 Web sites; 25 television stations, including superstation WGN America; a 31% share of the Food Network; the Chicago Cubs baseball team; and real estate and other holdings. Tribune had been slumping for years, courting buyers for more than 18 months before Zell ambled onto the scene in early 2007. Against that bleak backdrop, he loaded the already strapped company with more than $8 billion in fresh debt to pay for the deal, leveraging Tribune to within an inch of its life.
The payments, $1.4 billion by June 2009 alone, have proven crippling. Tribune's junk-level credit rating has fallen since Zell took over, and some of its bonds are fetching 35¢ on the dollar. Zell has been forced to cut costs far more than he anticipated. It may not be enough to avoid a default. "The colossal debt Zell piled on is forcing Tribune to take more and more desperate actions," says media consultant Alan D. Mutter.
On paper, Zell's plan looked great. He would quickly sell the Chicago Cubs, Wrigley Field, and a 25% stake in Comcast SportsNet Chicago to pay off debt, and focus on making Tribune's newspapers zippier and more ad-friendly. The strategy was based on an innovative financing scheme that used Tribune's tax-exempt employee stock ownership plan as the vehicle through which to fund the transaction. That would allow Tribune to save big on taxes: It paid $245 million annually on average over the past three years.
Zell's financing arrangement required the billionaire to pony up just $315 million of his own cash to wrest control of the company, with a warrant to buy 40% more for as little as $500 million. What's more, Zell turned Tribune into a so-called S corporation, a designation usually reserved for small businesses. That could allow Tribune to sell assets in 10 years without having to pay capital-gains taxes.
Zell doesn't need Tribune to thrive; merely keeping it alive could earn him an astronomical return when it comes time to sell. That has always been the goal. "When we first undertook this project, we viewed Tribune as 60 ways to get lucky," Zell says. But amid the credit crunch, the quick asset sales haven't panned out. With the newspaper business deteriorating, his seemingly clever strategy has thrown the whole Tribune enterprise into jeopardy.
The question for the company's 18,500 employees is whether Sam Zell is the guy to save it. Although he owned a radio company called Jacor Communications that was acquired by Clear Channel Communications (CCU) in 1999 and spends his weekends in Malibu, Zell is no media mogul and hasn't mixed well in that world thus far.
Early on, he told Tribune executives he would "cut off their ties" if he caught them looking so formal at future meetings. Prone to off-color jokes and profanity, he's more like "that guy you see on the Mexican beer commercial," says Jeff Peterson, owner of Geoffrey's Malibu, a restaurant frequented by Zell and his wife, Helen. "He just seems like a down-to-earth guy's guy."
Many staffers are alarmed by Zell's open disdain for the newspaper business. "The industry has lost its credibility" because of biased, boring, and self-indulgent articles, says Zell. For that matter, he doesn't much care for baseball, either, says Chicago White Sox majority owner and longtime friend Jerry Reinsdorf: "He actually dislikes it." Most deal makers, by contrast, lionize the companies they own to pump up sale prices. "If you have a lemonade stand, you don't try to sell the lemonade by saying it's terrible," says Myron Levin, a reporter for 23 years at the Los Angeles Times who took a buyout in March.
Adding to the uncertainty, Zell has tapped some quirky characters with no newspaper experience to run key elements of the Tribune empire. Randy Michaels, the chief operating officer, is a former Clear Channel executive and onetime "shock jock" who worked for Zell at Jacor. Michaels has installed jukeboxes, pinball machines, and a sculpture of a six-legged man running in circles called "The Bureaucratic Shuffle" in the Tribune Tower in Chicago.
Marc Chase, president of Tribune Interactive, is another Clear Channel alum and former DJ. Robert J. Gremillion, Tribune's executive vice-president and interim publisher of the Chicago Tribune, hails from the broadcasting division. Gerald Spector, the chief administrative officer who's overseeing the Los Angeles Times, is a Zell acolyte from the real estate business with a penchant for sweaters emblazoned with cartoon characters.
Tribune's new chief innovation officer, Lee Abrams, a former XM Satellite Radio Holdings (XMSR) programmer, has raised eyebrows, too. In March he began firing off 5,000-word e-mails suggesting employees peruse his 108 blog posts on what's wrong with the media. "While my background is steeped in rock 'n' roll," he wrote in his first e-mail, "I strongly believe that News and Information is the NEW rock 'n' roll…The NEW rock 'n' roll isn't about Elvis or James Dean, but it IS about re-inventing media with the exact same moxie that the fathers of rock 'n' roll had. The Tribune has the choice of doing to News/Information/Entertainment what rock 'n' roll did to music."
With the newspaper industry in free fall, Zell's new survival plan is to build out Tribune's broadcasting and Internet groups, which represent 24% of revenues, and slash costs in the newspaper group. "It's a smart move," says Hale Holden, a debt analyst at Barclays Capital (BCS) who follows Tribune. Broadcast companies are commanding valuations double what newspaper companies enjoy. "We think it's one of the few options he has available," Holden says.
That grim assessment stands in stark contrast to the jubilation that greeted Zell last Dec. 20, his first day as CEO, as he strode triumphantly into the Chicago Tribune offices, smiled broadly at his new comrades, and announced: "You own this company now!" He promised no cuts.
Even then, most observers knew the industry was being buffeted by falling revenues. "We started out saying, 'big Christmas, slow January,'" Zell says of the typically booming fourth quarter and anemic first quarter for ad sales. "Then we started seeing trends we didn't expect." Companies were abandoning newspaper ads at an accelerating pace because of a souring economy and cheaper alternatives online. "It's going to get worse, and it's going to go on a lot longer," says New York Daily News owner Mortimer Zuckerman, who has known Zell for 15 years and considers him a "business genius."
As ad sales nosedived, Zell rushed to enact a turnaround plan originally scheduled for 2010. It called for cost cuts and an immediate redesign of Tribune's six smallest dailies to make them leaner and more attractive to advertisers. Zell told employees, whom he addressed as "fellow investors," that they had to start acting like owners. The new mantra was "AFDI," an abbreviation for a crude slogan that was later sanitized to mean "Actually Frigging Doing It."
The first round of cuts came in the form of buyouts intended to slice 2% of Tribune's workforce. Zell suggested in a Feb. 13 memo that the moves reflected "the reality of our significant debt levels" and other problems. Tribune publishers sent memos hinting that future packages wouldn't be as lucrative. Profits were falling so fast that Tribune looked likely to violate loan agreements requiring it to keep new debt no higher than nine times operating earnings. (The ratio now stands at 8.1.)
In March, Standard & Poor's (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)) cut Tribune's credit rating to B-, from B. Says analyst Emile Courtney, who wrote the report: "That reflects the concern that Tribune might violate [loan agreements] in the near term…as early as December."
Operating chief Michaels conferred with publishers to find out how many pages Tribune could afford to print without breaking its debt provisions. In June he ordered that the ratio of ads to news shift to 50-50 instead of the usual 60% reserved for articles—meaning the so-called news hole had to shrink by 17%. The Baltimore Sun killed its stand-alone daily business section. The Orlando Sentinel ditched its stock tables. The Los Angeles Times announced it was merging sections devoted to books, opinion, real estate, autos, and a weekend calendar.
To Michaels, the moves are a matter of survival. "An animal with his leg caught in a trap will chew it off," he explains. "At the moment, we're doing some leg-chewing." Zell, meanwhile, has no patience for what he views as the pomposity of journalists casting their profession as some kind of sacred trust. "If you want to tell people what they should want, become a professor," he says. "But if you're in the newspaper business—and I emphasize the word business—then you have to respond to what your customer wants."
Zell and Michaels also shook up the sales side. They started placing calls to big advertisers, paying sales reps on commission only, and arming them with new types of ads, including ones in the middle of stories. "We want to incent them like hell to be greedy," says EVP Gremillion. Even if advertisers didn't want to be in the paper, Zell suggested, they could buy space on delivery trucks and printing plants.
As newspaper bosses were cutting jobs and pages, Zell's lieutenants sought to crank up broadcast profits, which had fallen 10% in 2007 because 13 Tribune stations were affiliated with the struggling CW Network. Michaels pressured CW to lower the estimated $72 million a year Tribune pays for its programs. He also complained about its core audience of young women, saying they tend not to watch local news. Local newscasts are the most lucrative programs because 100% of the ad revenue flows to the station, without network or syndicator middlemen.
The More Urgent Problem
Internally, Michaels unleashed radical changes designed to double the number of hours of local news on Tribune's stations. In Fort Lauderdale, Tribune is building a local TV news station inside the newsroom of the South Florida Sun-Sentinel to feed hours of content to Miami's WSFL-TV station. It also plans to launch a four-hour local morning show in January. In Chicago the company is planning a 24-hour breaking news center in the Tribune's newsroom to provide content for television, radio, cell phones, and newspapers.
"What we're doing could really change the business not only for television but also for print," says Ed Wilson, Tribune's head of broadcasting. One top executive at a major network has doubts: "Michaels doesn't know this business and hasn't taken the time to learn it. He's still a radio guy playing a TV executive."
None of the moves address the more urgent problem: Tribune's need for cash. It raised $630 million on July 29 by selling New York's Newsday, one of its most profitable newspapers, to Cablevision Systems (CVC) (Zell smartly kept a 3% stake to avoid taxes.) The price was less than what analysts estimate Zell paid for it last year, but it covered a big chunk of debt. In June, Zell put Tribune's headquarters and the Los Angeles Times' property on the market. On July 3, Tribune signed a $300 million asset-backed commercial paper deal with Barclays, in essence borrowing against money it expects to collect in the future.
And so the layoffs will keep coming. Tribune has axed 1,100 people thus far, with newspapers bearing the brunt. On July 2 the Los Angeles Times scrambled to cut 150 people, or 17% of its staff. It happened so fast that one editor said he didn't know whether to nod sadly or smile to his own staff members in the hallway because he couldn't recall who was on the list.
One wonders what might have happened had someone else bought Tribune. Zell and his team have limited flexibility, but a different buyer might not have taken on so much debt. Zell says the casualties will be "significantly greater" by year end, and he's unapologetic about that. "I knew that I needed to act as both the grenade thrower and the bomb deflector if we were going to get from here to there," he says. Getting "there," of course, would mean a big payday for Sam Zell.
The Tribune Co. Responds
Your article about Tribune Co. and Sam Zell, posted on BW.com on July 30, was a disappointing compilation of inaccuracies, half-truths, and incomplete reporting. The article fails to provide any context to help readers understand the fundamental change the media industry is currently undergoing. Battered in the short term by a weak economy that has eroded real estate, employment, and automotive classified advertising and in the long term by advertising's migration to the Internet, newspapers are experiencing the worst downturn in decades.
As a result, Tribune and its peers have been forced to reduce expenses—and staff—inside and outside the newsroom. And yet, despite these reductions, Tribune still has the two largest local news-gathering organizations in the country—in Los Angeles and Chicago—and continues producing great journalism.
The story also didn't explain our strategy to fully leverage the content of our diverse media products — across print, broadcast and the Internet — and to develop a new, sustainable business model for newspapers.
Finally, the article missed many of the positive things going on at Tribune.
We're building a streamlined, single technology platform. It will ingest and process audio, video, photos, text, graphics, and other content and process it for dissemination to TV stations, printing plants, Web sites, PDAs, cell phones, and other devices.
Based on direct feedback from our readers, we are also redesigning our papers to keep them relevant in a world of electronic consumption. We're also resizing them to better match user habits. We can't afford to print a two-hour read when consumers typically spend only 20 minutes with the paper.
In broadcasting, our local TV stations generally outperformed the industry in the first quarter (direct sales were up in almost all markets). We're launching or expanding local news in Chicago, Miami, San Diego, Denver, and elsewhere. Using inexpensive programming and unique promotions, we've re-launched our national cable channel, WGN America, which reaches 72 million homes and is getting record ratings.
Online, we're developing the platform and the creative programming to enable our Web sites to engage in more e-commerce and social networking. We're also moving into other methods of content delivery, such as the iPhone and the Kindle.
There are many examples of change at Tribune—driven not just from the top, but from the thousands of employees who believe in this industry and, most importantly, in our company. We're moving more swiftly and transparently than others in the industry, we're getting a disproportionate share of the media's attention. That's okay, we can take it. But occasionally the claims are so egregious we have to set the record straight.
Anatomy of a Media Mess
A time line of Tribune's troubles
Zell in December 2007, before the new year's bad news Charles Rex Arbogast/AP Photo
Tribune sales peak at $5.6 billion, four years after the $8.3 billion takeover of Time Mirror. The stock ends the year at 42, down from a high of 61 in 1999.
Sam Zell agrees to buy Tribune for $8.5 billion, or 34 a share, a 6% premium. He says he's not planning job cuts or a breakup: "Eliminating this or...that isn't going to make this work."
Zell completes the deal, personally investing only $315 million. He takes over as CEO, vowing to sell the Chicago Cubs to ease Tribune's debt burden.
Tribune announces it will eliminate 500 jobs and explores selling the Wrigley Field separately from the Cubs.
Faced with a rapid decline in cash flow, Zell agrees to sell Newsday to Cablevision for $650 million.
Tribune solicits bids for its baseball assets, aiming for $1 billion. Zell also puts the Tribune's Chicago headquarters and the Los Angeles Times building up for sale.
As Tribune slashes an additional 425 jobs, Chicago Tribune Editor Ann Marie Lipinski and Los Angeles Times Publisher David Hiller leave.
Tribune must make a debt payment of $650 million, with an additional $750 million coming due by June 2009.
Sam Zell Speaks His Mind
Zell looks back—and forward—on his debt-heavy takeover of media giant Tribune Co. Yes, the deal might be in trouble. But he has no regrets
Sam Zell has owned a lot of things since he began investing in real estate 40 years ago: radio stations, cruise ships, pay phones, mobile-home parks, barges, wire and cable factories, and power plants that generate electricity from garbage. Last December, he added nine daily newspapers, 25 TV stations, about 50 Web sites, and the Chicago Cubs to his portfolio when he took over media conglomerate Tribune Co.
The deal hasn't gone nearly as well (BusinessWeek, 7/30/08) as the billionaire had hoped. With newspaper revenue plunging two to three times faster than he had forecast, and big debt payments looming, Zell has laid off more than 1,100 employees, or 6% of personnel, and sold a string of assets including one of Tribune's biggest papers, New York's Newsday, which fetched $650 million. Now, he's analyzing bids for the Cubs and Wrigley Field that may hit $1 billion.
Zell, 66, recently reviewed what he's called "the deal from hell" with BusinessWeek Senior Correspondent Michael Arndt and Senior Writer Emily Thornton. They met in Zell's sixth-floor office in downtown Chicago, which looks onto his own private garden, where he often ducks out for a smoke. He wore his trademark work duds: a collarless white shirt open at the neck, crisply ironed blue jeans, and slip-on leather shoes. Here are excerpts from their conversation:
Will this be your best or worst deal?
If I knew the answer to that question, I wouldn't have to waste time talking to you. I think the way this deal is put together, we could get very lucky. On the other hand, if current trends in advertising are permanent, we have a really serious problem.
You've said you met with every publisher in the country before you did this deal, like Brian Tierney and Mortimer Zuckerman. Is there anything they forgot to tell you?
Yeah, that advertising revenue was going down 20% in the first quarter of 2008. Not one of them told me that.
And that it would continue to go down in the second quarter?
They didn't tell me that either.
How have you had to change your plan because of this falloff?
We started out saying, "big Christmas and a slow January." Then we started seeing trends we didn't expect. We started pulling together a crisis strategy to go forward to implement our programs, but much more quickly than we had anticipated.
The speed at which we did the Newsday deal was a response to that. But the acceleration of all of our 2010 plans is about as big a response as you can possibly imagine. What we're doing right now in reformulating all of the newspapers—we would have preferred to have done that slower and over a much longer period of time. The original time frame was 2010. Basically, we've taken those plans and brought them forward to 2008.
You paid 9 to 10 times annual cash flow for the company. Looking back, was that overvaluing Tribune?
Oh, looking back, for sure it was overvaluing it.
Knowing what you know now, would you still have done this deal?
The way I answer everyone with questions like that is that my head doesn't do a 180. I only look forward. I have no remorse about anything.
You have said that you see Tribune becoming more of a broadcasting company with fewer newspapers.
I think Tribune, in terms of revenue, is about two-thirds newspapers and one-third broadcasting. Our goal would probably be to make it much more 50/50. You can make it 50/50 by selling newspapers. You can also make it 50/50 by making broadcasting a lot more valuable and a much bigger earner.
Which method do you foresee taking?
Longer term, it's very hard to see growth in the newspaper business.
What do you think of Tribune's newspapers?
I think they are generally decent papers. Some of them are much better than others. And I believe they all can be better.
Are there any pieces of Tribune that you feel you need to keep or Tribune loses its essence?
I've never sat down and said I won't do this, I will do this. It's just not the way we think about it. There are a lot of pieces that are holy grails. I can't imagine us ever selling the Chicago Tribune.
Is anyone interested in the Los Angeles Times?
As far as I know, there have always been people interested in the L.A. Times. Even now. I could sell all of the newspapers if I wanted to. If you remember, all the savants suggested we would get $300 million for Newsday. They were wrong. I think they will be wrong again, and again, and again, and again, and again.
Some bankers and analysts estimate you have about $1 billion of real estate assets as well.
I haven't done that kind of analysis. Your number sounds light. It could be significantly more.
What's your No. 1 revenue-growing opportunity going forward?
I think there's little doubt that percentage-wise the Internet will be a bigger part of our future. We also believe WGN America, our superstation, represents a massively underused asset. There are only two superstations in the country: TBS and WGN. TBS has operating cash flow that is five times what WGN has. It's unjustifiable. That represents an enormous amount of future growth for this company.
How are you viewing the criticisms of you on the Internet?
No. 1, I don't go on the Internet. So that makes it easy. I don't go to YouTube. I don't go to these blogs. No. 2, I knew going in that this was a monstrous job. I knew that I needed to act as both the grenade thrower and the bomb deflector if we were going to get from here to there. I also had to decide that I would take the flak that came with it. I'm still sitting here.
When you closed this deal, you described it as the deal from hell. Is it still the deal from hell?
Of course, it's the deal from hell. And it will continue to be the deal from hell until we turn it around.
Back in high school, you sold Playboy magazines to classmates, is that right?
You could call that my first media experience. It was much more profitable than this one, and a much higher and faster return on investment.
Wednesday, September 3, 2008
By Meg James, Los Angeles Times Staff Writer
Chicago-based Tribune, which also owns the Los Angeles Times, has begun redesigning some of its websites, including that of KTLA-TV Channel 5 in Los Angeles, by dropping the CW network brand and instead focusing on its local identity.
The CW's pursuit of young viewers clashes with Tribune's focus on its newscasts, which generate most of its TV stations' revenue and appeal to older viewers.
Tribune switched affiliation from CW to Fox Broadcasting Co. at its San Diego station this year, leaving 13 of 23 Tribune stations still airing CW programs.
Tribune said the station re-branding, first reported by Hollywood publication Variety, was not a slight to the CW. KTLA and many of the Tribune station websites prominently promoted "90210," which launched Tuesday, and "Gossip Girl," which delivered strong ratings Monday in key demographic groups.
"We want the prime-time programming rolling out this week, and in the coming weeks, to be successful. We need it to be successful," Tribune spokesman Gary Weitman said.
The CW declined to comment.
MORE CASH FOR SAM's TRIB DEBT PAY DOWN
In a move to increase cash available to cover Tribune's huge interest and principal payments on the debt incurred in Sam Zell's purchase of the media giant, the Tribune Company announced today that Gannett has acquired an additional 10 percent stake in CareerBuilder from Tribune for $135 million. The CareerBuilder employment site is said to be worth $1.35 billion.
Tribune will use the cash to pay down some of the $13.4 billion debt related to the buyout led by real estate mogul Zell. The company recently sold off Newsday to Cablevision for $650 million; Wrigley Field, the Chicago Cubs, Tribune's interest in a local regional sports network, the LA Times building, and Chicago's Tribune Tower are also on the block.
The acquisition gives Gannett a 50.8 percent controlling interest in CareerBuilder, the U.S.’s largest online job site.
“This transaction offers us an excellent opportunity to monetize some of the value CareerBuilder has built over the years, while enabling us to maintain a significant stake in a great online property,” said Sam Zell, Tribune’s chairman and chief executive officer.
Tribune now owns 30.8 percent of CareerBuilder; The McClatchy Company (NYSE: MNI) continues to own 14.4 percent; and Microsoft Corp. (Nasdaq: MSFT) continues to own 4 percent.
TRIBUNE is America's largest employee-owned media company, operating businesses in publishing, interactive and broadcasting.
In publishing, Tribune's leading daily newspapers include the Los Angeles Times, Chicago Tribune, The Sun (Baltimore), South Florida Sun-Sentinel, Orlando Sentinel, Hartford Courant, Morning Call and Daily Press.
The company's broadcasting group operates 23 television stations, including KTLA and WPIX; WGN America on national cable; Chicago's WGN-AM; Wrigley Field and the Chicago Cubs baseball team.
Popular news and information Web sites complement Tribune's print and broadcast properties and extend the company's nationwide audience.
Sam Zell says "At Tribune we take what we do seriously and with a great deal of pride. We also value the creative spirit and are nurturing a corporate culture that doesn't take itself too seriously. "
In the nurturing spirit of Sam's lighthearted corporate structure, Tribune has laid off approximately 20% of their print employees, with more company wide cuts expected.