Monday, January 25, 2010

Time to Protest Tribune Executive Bonuses, The Judge Wants To Hear Objections NOW

Hi All,

Now would be a good time for all the unions with Tribune collective bargaining agreements to contact the bankruptcy court to protest this outrageous executive bonus plan.

This bonus plan is a slap in the face to the people who produce the newspapers and keep the TV stations on the air to create the income that Tribune is distributing as bonuses to management.

The case is: re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).
Contact Judge Kevin J. Carey at:

Chambers of the Honorable Kevin J. Carey, Chief Judge
U.S. Bankruptcy Court Wilmington, Del
5th Floor, Courtroom #5
824 North Market Street

Wilmington, DE 19801

Bankruptcy Judge Set To Give Tribune Co. Executives $45 Million in Bonuses
By Gillian Reagan

The bankrupt Tribune Co. wants to give up to $45 million in bonuses to hundreds of their managers.

A bankruptcy judge in Delaware is waiting for objections to their proposal and is set to make a final decision this week.

This summer, several organizations objected against the company's original proposal for $70 million in bonuses for executives. The Newspaper Guild wrote at the time:

"The proposed bonuses to top executives are excessive and may, in fact, have a detrimental effect on motivating others who contribute to the bottom line. Indeed, the payment of disproportionate bonuses to a select group of executives may have the opposite effect on the rank-and-file employees."

"Incentivizing employees is essential to Tribune's future success. We must continue motivating our people to overcome obstacles, achieve our performance goals and take the company to the next level," the Tribune's COO Randy Michaels wrote the court in a letter.

The Chicago-based Tribune Co., which owns 25 television stations and major newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy in 2008.

They faced what chairman Sam Zell called a “perfect storm” of forces troubling the media industry, along with $13 billion in debt.

According to the AP, Tribune Co. attorneys told the judge last Wednesday that the bonuses are typically paid in February and asked that they be considered separately from two other incentive plans the company has proposed

Sam Zell And Tribune Management Screwed His Employees

by Henry Blodget

There was some suggestion that Sam Zell was feeling the company's pain when he put Tribune into bankruptcy last year: He put $315 million of his own money into the buyout, after all ($315 million of $13 billion of debt), and surely he had just lost it. Well, don't go crying for Sam just yet.

Sam's $315 million didn't go to buy Tribune stock, which will likely end up nearly worthless. Sam's $315 million went for subordinated debt with a warrant to buy 40% of the company if and when he chose to do so.

For obvious reasons, Sam hasn't chosen to do so. This means that Sam is standing far ahead of common shareholders in the line as the company gets chopped up.

And who are those common shareholders? Tribune employees, of course.

And how did Tribune employees end up owning the stock?

Because Sam Zell financed the buyout deal partially by borrowing against the employees pension plan and using this money to buy them stock.

Tribune employees will now get demolished, while Sam and the company's other creditors divide up the assets. Sam probably won't get out whole, but he could end up not losing much, either. Especially since the Tribune is still generating cash (the bankruptcy was triggered by the company's earnings falling below a specified level, not by a default).

The NYT's Andrew Ross Sorkin explains:

"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." (The good news: any pension money put aside before the deal remains for the employees.)

As Mr. Newman, an analyst at CreditSights, explained at the time: “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.”

And so it is...

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).

On top of that, a firm called the Valuation Research Corporation wrote a “solvency opinion” suggesting that Tribune could meet its debt covenants. Thomson Reuters, which tracks fees, estimates V.R.C. was paid $1 million for that opinion. V.R.C. was so enamored with its role that it put out a press release.

I think Tribune's assertion that "incentivizing employees is essential to Tribune's future success," apparantly only applies to their already highly compensated executives and does not take in to account the damage this action will cause to the rest of Tribune's employees.

According to Andy Zipzer, editor of the Guild Reporter; "The best employees are motivated to do their best for a variety of reasons that have less to do with money and more to do with loyalty to the employer, pride in one's work, and a sense of responsibility."

I concur; loyalty, sacrifice, and responsibility is what Tribune management expects from the non-executive employees, how can they expect less from the corporate leadership? Handing out bonuses to the few, while cutting the pay and benefits of the rest, serves only to erode the employee loyalty and support that is vital to saving Tribune.

Don't let Sam Zell add insult to injury. Don't let Sam give $ 45 million dollars in bonuses to executives while the rest of Tribune's employees endure, pay and benefit cuts, massive layoffs, with nothing but more of the same to look forward to.

The case is: re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).

Contact Judge Kevin J. Carey at:

Chambers of the Honorable Kevin J. Carey, Chief Judge
U.S. Bankruptcy Court Wilmington, Del
5th Floor, Courtroom #5
824 North Market Street, Wilmington, DE 19801

Call the Judge at: 302-252-2927

Don't wait, Judge Carey plans to make a decision on whether to allow Tribune to pay $45 million dollars in executive bonuses by the end of this week.

In solidarity,

Bob D

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