Winner, Most Prescient Post of 2008: Mark Potts
It was just shy of one year ago today when Mark Potts swam against the Zellebratory news of the sale of Tribune, in a post entitled “Here Come The Death Eaters,” in which he typed these words:
Put that all together, and 2008 may be the year that the Death Eaters start coming for some of the biggest names in the business: Big chains or papers that are overextended financially and find themselves undermined by the gathering storm of problems. Wall Street and bankers aren’t going to put up with that, and executive heads—not to mention those of a lot of unfortunate rank and file employees—will roll. Watch for still more consolidation and, um, innovative financing that will further roil the industry.
Just look at the tumult that accompanied Sam Zell’s closing of his deal to buy Tribune Co. this week. The bankers were squeezing the deal right up to the last minute. Even Zell called it “the transaction from hell.” And Zell’s going to have to pedal—and peddle—as fast as he can to keep the company afloat financially. It’s not just the Chicago Cubs that are going to be sold by Tribune. Look for a fire sale of real estate and newspapers (Los Angeles Times, anyone? Anyone?) as Zell strips the company for cash. And at this holiday time, say a prayer for the poor Tribune employees, who could be left holding the bag—through their retirement plan, which now owns the company through Zell’s creative accounting—if things turn sour. Memo to Tribune employees: Get. The. Hell. Out.
(Emphasis mine.)
And so it begins
Photo by William Couch. 1/31/2008
Both the Wall Street Journal and New York Times are reporting tonight that the Tribune company has hired an investment bank and a law firm for a potential bankruptcy filing as early as this week. This is definitely a long way down the road from a year ago when the arrival of Sam Zell was seen as a bold move toward the reinvention of a once-great newspaper brand.
Now?
Here’s the New York Times take:
Tribune has hired bankruptcy advisers as the ailing newspaper company seeks to stave off a potential bankruptcy filing, people briefed on the matter said.
The newspaper, which was taken private last year by billionaire investor Samuel Zell, has hired the investment bank Lazard and the law firm Sidley Austin, these people said. Tribune has been hobbled by debt related to that sale last year, which has been compounded by the growing drought of advertising for newspapers.
The Wall Street Journal puts the Tribune distress in perspective:
The appointments underscore the deepening distress for Tribune and other publishers. Newspaper businesses are being battered by dwindling advertising sales and carrying debt loads that are unmanageable in current market conditions. People in the industry expect some papers will need to seek bankruptcy protection or fold in coming months.
Tribune has been on wobbly footing since last December, when real-estate mogul Sam Zell led a debt-backed deal to take the company private. Tribune so far has stayed ahead of its $12 billion in borrowings with the help of asset sales, but now dwindling profits are tightening the noose. The company’s cash flow may not be enough to cover nearly $1 billion in interest payments this year, and Tribune owes a $512 million debt payment in June.
Based on the state of declining revenues at the company and its lenders’ likely unwillingness to allow Tribune to simply sell off assets to make its payments (as it did with the sale of Newsday in 2008), bankruptcy looks increasingly inevitable. These actions seem to imply that the question may be called sooner than the mid-2009 period I had seen mentioned previously.