Now one could argue newspaper is a dying business anyhow, which I can respect, but the greater trend/implications of deal making and "whose interest" businesses are now being run is what I am more concerned as opposed to anything specific to Tribune. Workers are sold out so the "elite" can make their bucks - this deal is just a sliver of what goes on all the time. Details from the New York Times (again the BusinessWeek article from July mentioned many of these facts) - bottom line: the banks, and titans making the deals always win (Heads we win, tails we win) Even when they don't win, the government now makes sure they (at least the banks) win. Losers? Taxpayers and peon workers. What is so interesting is employees and taxpayers in this country just seem to sit back and "take it" - perhaps they just don't understand how often they are sold out. And before you call me a socialist, I don't consider extracting huge sums out of companies offset by a greater than average change to become a cadaver a great "capitalist" trait. One must question the sense of it all - but hey at least, the board, CEO, advising banks, and shareholders made out. Those are the important ones. Unfortunately as companies implode that's a cost for the rest of us to pick up as social services for the newly unemployed fall on the rest of us.
- Sam Zell acknowledged from the start that his deal for the Tribune Company was flawed. “I’m here to tell you that the transaction from hell is done,” Mr. Zell said last December when he sealed his $8.2 billion takeover of the publisher of The Chicago Tribune and The Los Angeles Times. But just how hellish this deal was, particularly for Tribune employees, became painfully clear on Monday when the 161-year-old company filed for bankruptcy.
- There is a lot of blame to go around, and much of it will be directed at Mr. Zell, the real estate baron whose knack for buying when everyone else is selling earned him a fit sobriquet for the news business these days: The Grave Dancer. Advertising is in a free fall, and every newspaper is suffering. But Mr. Zell literally mortgaged the future of Tribune’s employees to pursue what one analyst, Jack Newman, at the time called “a childhood fantasy.”
- 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.
- 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.”
- Granted, Mr. Zell, 67, put up some money. He invested $315 million in the form of subordinated debt in exchange for a warrant to buy 40 percent of Tribune in the future for $500 million. It is unclear how much he’ll lose, but one thing is clear: when creditors get in line, he gets to stand ahead of the employees.
- 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
- 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). (And *these* are the firms we are handing taxpayer money left and right to keep them upright.)
- 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.
- Mr. Newman, the analyst who predicted the trouble, said in an interview on Monday, “The employees were put in a very bad situation.” He added that while boards are typically only responsible to their shareholders, this situation may be different. “There has to be a balance,” he said, “to create sustainability for all the stakeholders.”
What a system.
