The [Friday] Papers
While most of us are still trying to figure out just how Sam Zell's deal for the Tribune Company will really work, and what exactly it will mean for the company's employees and the public who depend on the company's newspapers for information about their communities, it isn't mere reflexive cynicism to observe one thing that is clear: This will be good for Zell and current Tribune executives and bad for employees and the public. To believe otherwise is to be insanely naive.
Because Zell and the Trib executives who struck the deal are in it to make as much money as they can. They aren't in it to deliver the best journalism they can produce as a civic duty, public interest, and bulwark of democracy. Those two objectives are at cross-purposes.
Zell and the boys in the corporate suite do not not have in mind the best interests of the folks in Los Angeles, Baltimore, Hartford, Orlando, Fort Lauderdale, Long Island and so on in mind - nor those in Chicago. If they did, they would sell off those papers to the locals - and in many cases non-profits and civic leaders - who desire them, and desire to run them as a public trust. But that's not how they think; they are businessmen. They could just as easily own, say, a real estate investment trust.
While selling off assets is still a possibility, Zell and the Trib management team that will stay in place - at least for the time being - do not have the best interests of citizens and workers in mind; they have their own financial interests in mind. That is who they are, and that is their interest in Tribune Company. Neither Zell nor chief executive officer Dennis FitzSimons cares about newspapers; they care about making money. I'm not making a judgement, although I'm not a big fan of obscene greed, I'm just stating the obvious and the starting point from which we should build our perspective.
Zell, in fact, claims he's never read news online, which makes him either a liar or wholly unqualified to own a major media organization. Zell may be a colorful character (at least to newsroom dullards wowed by a guy who doesn't wear a tie and rides a motorcycle) who will provide occasional entertaintment as a media mogul, but at his core he is a self-proclaimed "gravedancer" who preys on "distressed properties" - just like those guys in the infomercials who show you how to scan the obits for "motivated sellers."
No one should expect Sam Zell to deliver anything more than dollars into his own pocket. The funny thing is that Zell has been the first one to say this himself. He's said time and again that he's in this deal for the money, but somehow reporters, editors, and some analysts want to believe that Zell is the man who will lead Tribune to the Digital Promised Land, as if the company had just been bought by the Google guys or Apple. Now that would have been exciting.
Instead, the contours of the deal are just depressing. Veteran New York Times business columnist Floyd Norris calls the Zell deal "absurd because those who will lend the money to the company are taking on equity risks if things go wrong, but will not get equity benefits if they go right."
Those lending the money are the employees.
"The employees could prosper - eventually - from the employee stock ownership plan," Norris writes, "but it will be a decade before employees will be allowed to cash in even part of their ESOP shares. In the meantime, the company will be cutting the cash it sets aside for their retirement."
Floyd adds a few dire details in his news report today: "[I]n most cases [employees] will not be able to cash in any of their stake for at least a decade, and then only if they are retired or over 55 and worked for Tribune for at least a decade."
Thank you for playing!
Of course, many of today's Tribune employees won't be around in 10 years anyway. Or maybe even a year from now. With the staggering amount of debt the company is taking on, significant cost-cutting is inevitable, no matter what anyone is saying right now, unless Zell rescinds his statement that the company will not be broken up, which is usually the way leveraged buyouts are paid for. There's certainly no room for investment; ironically only the Cubs may get out alive.
The public will also not be well-served by a deal whose economics will further degrades the quality of journalism the company produces. Norris reports that the public will be hurt in another way as well: "Tribune is relying on a combination of tax benefits that assure the company will not pay a dime of tax for years to come."
Like some other observers, Norris finds some encouragement that someone apparently sees a strong future for newspapers, but let's get real: all Zell sees is numbers. Frankly, seeing 20-plus percent profit margins must look good to anyone from outside the industry. In addition, Zell just might see that large media companies like Tribune are best positioned to the dominate the Internet, and that Tribune in particular is transitioning relatively well even if it it hasn't quite ratcheted up an online-worthy imagination quite yet.
Frankly, I doubt very much that Zell gives two shits about the future of the newspaper industry - and he has said as much. He sees value to extract and he will extract it. It's not much more complex than that.
Phantoms of the Opera
I find it very inspiring. Tribune Company executives do legally what Conrad Black is on trial for doing illegally. Bravo.
Now the golden goose of cross-ownership in Chicago, as well as the company's plans elsewhere, may be in jeopardy - and could quash the Zell deal.
John Morton, the industry's leading analyst, tells the Tribune that "When there is a change in control, the grandfathering goes away."
The company apparently will seek waivers, but the Tribune reports that the second phase of the stock buyback necessary for Zell to gain control of the company "will go forward only if the transcation receives the required regulatory approvals."
The Trib also reports that FCC Commissioner Jonathan Adelstein wrote in an e-mail last week that "any new owner must comply with the rule on the books that prohibits cross-ownership on newspapers and broadcast outlets."
Adelstein, a Democrat, is an opponent of media consolidation, so that's no surprise. But Crain's reports that a Republican commissioner is also leery about granting the company a waiver. A Democratic president elected in 2008 could also shift the balance of power on the FCC against media consolidation and Tribune-friendly waivers. There goes the Obama endorsement!
Still, Zell must have a plan. He's playing it awfully coy, but it's hard to believe he's as strategically clueless as he portrays himself to be in this transcript. Or perhaps it's enough for him to see what is still an immensely profitable company - don't be fooled by the doom-and-gloom - at its lowest value with an array of revenue-generating assets that still aren't fully deployed. In other words, maybe you don't need an immediate strategy if you can buy, as many others have also pointed out, an $8 billion for $300 million.
Aren't they always?
- Tim Willette
* I received a couple notes like this one over the tip line yesterday: "Notice the Michael Sneed picture in the S-T from the first day of the 'redesign' and then today's . . . After one day of her being portrayed realistically she switched back to her old photo from about 15 years ago. Kind of funny . . "
Hey, they're all about the truth over there. Even if they have to touch it up.
* So-Called Austin Mayor catches the S-T not exactly supporting the troops.
* Neil Steinberg has finished his book. Maybe he should start writing a column.
* I was a proponent of bringing Joe Girardi in to manage the Cubs and going in a different direction with this team, but I think Greg Couch gets it right today in his piece about Lou Piniella. Couch, in fact, seems to get it right more than any other Chicago daily sports columnist, in my view.
* Steve Stone on The Score yesterday explaining the difference between Dusty Baker and Lou Piniella: "[Piniella] only cares about one thing, and it's not the players' feelings."
* This strikes me as a story warranting more attention than it's gotten: "A second former officer of the Iraqi Intelligence Service has identified a Des Plaines man as a 'sleeper spy' embedded in the U.S. to recruit collaborators and gather information for his home country," the Tribune reports.
I mean, a sleeper spy in Des Plaines!
It's also a story that seems to have a stronger foundation than the nonsense about those Miami guys who were going to blow up the Sears Tower with some stinkbombs or something.
* "Comcast Near Finish of Digital Upgrade."
A) Now you'll be missing even sharper images when your cable goes out.
* The O'Hare expansion project is $400 million over budget - and running out of money. City officials blame new expenses associated with control towers that spit water.
The Beachwood Tip Line: Gravedancing in the streets.
Posted on April 6, 2007
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