Thursday, August 20, 2009

Tribune Co. Executive: Operating Management Will Stay With Media Company

By Michael Oneal
Tribune staff reporter

Responding to recent media reports he called "inaccurate," a top Tribune Co. executive sent a note to the company's employees Thursday saying that Tribune Co.'s current "operating management" intends to stay at the company following the Chicago media conglomerate's emergence from bankruptcy court.

Randy Michaels, Tribune's chief operating officer, also termed "absurd" suggestions in the reports that the company might be liquidated as part of its Chapter 11 plan of reorganization.

Apparently responding to a story in the Chicago Sun-Times last week predicting Tribune Co.'s lenders would gain control of the media conglomorate, oust Tribune CEO Sam Zell and sell the company's assets, Michaels said, "while the ownership structure of the company is likely to change, current operating management is committed, and intends to remain in place during and after the restructuring."

He also said that "we believe there is tremendous value in our current asset mix" and that "the whole of Tribune is greater than its sum of parts."

He noted that "in many respects, we're finding that our creditor groups agree with these principles, but of course, there are a lot of details to be worked out."

Michaels did not specifically acknowledge the Sun-Times story in the employee memo. But he said that "operating management" intended to stay, noting that "our business units, including all of our newspapers, are profitable. It would be absurd to think that this company will be liquidated."

U.S. Trustee And Unions Question Tribune Co. Bonus Plan

The U.S. Bankruptcy Trustee in Tribune Co.'s Chapter 11 case and three unions representing workers of the Chicago-based media conglomerate raised objections to Tribune management's plan to pay out tens of millions of dollars in performance bonuses.

The filings came in response to Tribune Co.'s July 22 request for authorization from the U.S. Bankruptcy Court in Delaware to pay from $21 million to almost $67 million in bonuses to more than 700 managers and other key employees for their work this year.

Tribune Co., which owns the Chicago Tribune, Los Angeles Times and other media properties, also sought to pay nine of its top 10 executives $3.1 million in belated 2008 bonuses.

Sam Zell, the company's chairman and chief executive, is not part of the group of 10.In its response to Tribune Co.'s motion, the U.S. Trustee said the company didn't provide enough information to justify its incentive plan.

Specifically, the Trustee asserted that there is "insufficient information" in Tribune Co.'s motion to prove that the payments are for "bona fide programs and awards based on real performance targets."The Trustee, which is charged with enforcing the bankruptcy laws written by Congress, said that the awards are based on meeting specific cash flow targets but that Tribune Co. does not "give any factual and/or historical context to back up their characterization of that performance target as being 'real.'"

It also questions whether the awards are in the "ordinary course of business" as required by law.

Consequently, the Trustee said the company should provide cash flow targets for 2006 through 2008 and actual performance against those targets. Likewise, Tribune Co. should provide cash flow projections and actual results for 2009.

The Trustee said it reserves the right to supplement its response or object to the bonus request once it has this and other information. It objected outright to Tribune Co.'s request to seal certain parts of a consultant's report filed in support of its motion.

In a statement, Tribune Co. said, "The motion now before the court has the support of our senior lenders and the unsecured creditors committee. Importantly, the bulk of these incentive programs benefit more than 700 employees across the company and are performance-based. We believe our 2009 incentive program is both moderate and reasonable."

Four of Tribune Co.'s unions, meanwhile, lodged their own objections to the plans. The Washington-Baltimore Newspaper Guild, which sits on the unsecured creditors committee in Tribune Co.'s case and represents employees at The Sun, Tribune Co.'s daily in Baltimore, filed an objection which was joined by local units of the International Brotherhood of Teamsters in Baltimore, the Communications Workers of America and International Brotherhood of Electrical Workers in New York.

"At a time when media companies are suffering incomparable losses and struggling to survive, the Debtors have proposed spending $69.9 million to reward their top management for financial performance that, year-over-year, evidences declining fortunes," the union filing said.

"While creditors face limited recovery on their claims and most rank-and-file employees live with frozen pay and benefits, the Debtors believe a proper exercise of business judgment results in millions of dollars distributed to management."

The unions question whether the goals set by the bonus plans are challenging enough and whether the awards can be considered "ordinary course" payments. They also contend that that Tribune Co. has provided no evidence that there is a causal link between the requested payments and the continued operation of the business.

"The (bonus plan) is not designed to drive employee performance toward challenging goals which are subject to the risks of the marketplace," the filing said. "Rather the (plan) is designed to reward insiders for remaining in the Debtors' employ through the end of the (plan) period.

Tribune Co., which filed for Chapter 11 protection last December because it was struggling to manage the heavy debt it took on in going private a year earlier, has said that the bonus payments are needed to motivate managers working under difficult conditions. They will only be paid in full if the company well exceeds performance targets.

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