The [Thursday] Papers
Welcome back to The Chandler Bigelow Show.
Today's episode: Cash Flow Is For Closers.
"Although only confidence flowed from deal participants in 2007, the report shows that what held the complex, two-stage transaction together was mostly fear of getting sued if it fell apart," the Tribune reports.
"The banks that had agreed to finance the deal wanted out, the documents show, and in the offices of Sam Zell, the Chicago real estate magnate who orchestrated the LBO, debate ensued over whether to bail."
Wow. No wonder Zell put so little of his money into the deal; he had little faith in it. But then, neither did anyone else at the table.
"With just hours before the planned close of the $8.2 billion buyout of Tribune Co., the market is still jittery about the transaction, with the stock trading at a large spread to the final $34-per share offer price," Dennis K. Berman reported at the time for the Wall Street Journal. "Despite some deep worries from the banks funding the deal, the plans have clicked into place - led by JPMorgan - and it appears the Trib's harrowing 18-month sales saga should be over tomorrow, say three people involved in the matter.
"In recent days discussions among the lending banks - JPMorgan, Merrill Lynch, Citigroup and Bank of America - have become excruciating exercises, these people added, as the banks tried to weigh their duties to their clients and their shareholders."
The Tribune itself reported that "Even some industry rivals are dumbfounded by what Zell has planned."
"The amount of debt Tribune is going to have blows my mind," one of them told the paper. "It seems very dangerous to me."
"According to a deposition taken from then Chief Financial Officer Donald Grenesko, Tribune Co.'s board was never shown the final five years of projections," this week's Trib account says. "But the report said Valuation Research depended on them in coming to a positive solvency opinion. Klee said it remained to be investigated why Valuation Research decided to use Tribune Co.'s projections when it had a set of its own, based on outside research, that were much less optimistic.
"[Chandler] Bigelow couldn't be reached. Through an attorney, Grenesko said the report is 'deeply flawed' and based on 'conflicting testimony.'"
He's just dying - dying - to put his hand on the Holy Bible and testify in a venue that's appropriate: a courtroom!
"Another issue Valuation Research glossed over, the report said, was a repayment crunch Tribune Co. was going to face in 2014. Valuation Research asked Tribune Co. to officially 'represent' that it could refinance the debt. It also asked management to get a similar opinion from Morgan Stanley, which was advising the board.
"E-mails and depositions in the report show the executives asked Morgan Stanley banker Thomas Whayne for such a representation, but he declined, saying he could provide data showing only that similar securities had been refinanced successfully. Notes from a Valuation Research executive, however, indicated Tribune Co. implied that Morgan Stanley had given its assurances.
"Klee accused Tribune Co. management of being dishonest in how it used Morgan Stanley's imprimatur to get over a last hurdle to a Valuation Research solvency opinion. And he noted tartly that Valuation Research had been irresponsible in relying on Tribune Co.'s word, anyway, when there was plenty of evidence that the ability to refinance billions in debt seven years out might be problematic."
Sort of like Alfonso Soriano's contract. Cubs see, Cubs do.
"In a statement about the report, Tribune Co. said it agrees with some of Klee's findings, but that 'some are simply wrong.'
"'For example,' the statement said, 'we disagree with the examiner's characterization of the company's dealings with Morgan Stanley and believe there are more facts yet to be disclosed regarding the company's relationship with that firm.'"
The statement refused to elaborate.
"As early as August 2007, one of Mr. Zell's executives told him in a confidential memo that solvency was a concern and former Tribune CEO Dennis FitzSimons 'did not appear to be taking the issue seriously,' according to the report," Crain's reports.
"The report said that Mr. FitzSimons waffled with respect to his support for the Zell buyout and alternative proposals. Still, the examiner said in a footnote that he had not 'drawn any conclusions about whether Mr. FitzSimons engaged in dishonesty.'"
The examiner's Magic 8 Ball, though, said "Definitely Yes."
These days, though, it's Zell who doesn't appear to be taking solvency seriously - even though his company is in bankruptcy.
"In his interview with the examiner, Mr. Zell denied any solvency concerns. '(A) solvency opinion doesn't do shit for me . . . Cash flow is all we care about,' he is quoted as saying."
Okay. Like maybe having enough cash flow to stay solvent?
Or maybe cash flow has other important purposes.
"Testifying before a federal bankruptcy judge, Chief Financial Officer Chandler Bigelow III said the bonuses would help 'incentivize our key managers to battle all of the intense challenges that unfortunately our local media businesses are facing,'" AP reported last fall.
"Bigelow said the bonuses were designed using operating cash flow as the key metric."
Chandler Bigelows I, II and IV were not available for comment.
But jj8899usa was.
"Let's hear about the Tribune Company's culture of corruption," he/she wrote in a comment posted to the Trib story.
"Yeah, but they still want the bonuses," meesohawnee added.
See, meesohawnee, you just don't understand business; cash flow is for closers. Solvency is for chumps.
Meanwhile, we don't want to frighten you but comments from Mystery Guest appear to be coming from . . . inside the building!
That's okay. There's a good chance that building will be the world's largest Dollar Store by this time next year. Everything must go.
You're In Chicawga Now
The Beachwood Tip Line: Grow a twisted pair.
Posted on August 5, 2010
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