This post is part of our feature on Money Losers of 2008. See all 20.
When Sam Zell acquired the Tribune Co. in April 2007 for $8.2 billion in cash, pundits speculated about whether the "grave dancer" who had made billions in distressed real estate had bitten off more than he could chew. The overwhelming evidence indicates that is exactly what happened.
Even by the very low standards of the newspaper industry, Tribune was a disaster. Many of its papers were big-city dailies that have been hit especially hard from the move by advertisers online. The Los Angles Times, the flagship paper of the old Times Mirror chain, experienced both the biggest declines in circulation and in newsroom employees, according to a New York Times report from October. During the third quarter, operating expenses in the publishing business rose 6% to $640 million while operating revenue plunged 13% to $654 million. It's no surprise that there have been boatloads of layoffs in the division.
The broadcasting business has also been hurt by soft advertising at the company's 23 television stations. Mark Cuban's efforts to buy the company's Chicago Cubs have reportedly been held up because the the loud-mouth billionaire's problems with the SEC. The fact that many businesses are finding it impossible to get a line of credit does not help either.
In a press release about Tribune's recent Chapter 11 filing, Zell said in the first year of his ownership that Tribune had made progress in becoming a more nimble and entrepreneurial company. "Unfortunately, at the same time, factors beyond our control have created a perfect storm -- a precipitous decline in revenue and a tough economy coupled with a credit crisis that makes it extremely difficult to support our debt," he said.
That's bull.
Largely thanks to Zell, Tribune now has a whopping $12.9 billion in debt. I don't see how the company will be able to finance it without either major asset sales (including the Cubs) or layoffs or both.
What gets forgotten in the discussion about Zell is that Tribune was a mess for years. It was created by a poorly thought out merger whose benefits never materialized. Many demographic shifts in its major markets such as Los Angeles have been festering long before the current economic crisis. Its entertainment business has sucked wind for years.
It is baffling why Zell -- using an employee stock option program -- thought he could do any better in solving them than previous management. His hubris was his undoing.
This bankruptcy couldn't have happened to a nicer guy.
Be sure to check out more Money Losers of 2008.
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Reader Comments (Page 1 of 1)
12-26-2008 @ 9:26PM
brad morgan said...
Mr Zell should have kept his ownership of Commodore homes Hopefully Mr shein is doing a great job.
12-27-2008 @ 12:20PM
ruth said...
If Sam was not being influenced by literary wanna be's in his closest relations, he would NEVER have gone against his own rule of avoiding ego infused businesses such as entertainment and media.
12-27-2008 @ 5:43PM
Henryk A. Kowalczyk said...
A slightly different take on the same problem
http://www.huffingtonpost.com/henryk-a-kowalczyk/the-perfect-test-that-the_b_153554.html