I looked back at what I wrote when Zell first announced the deal to buy the Tribune Company. I was cautious at the time to not offer an opinion about the sanity of a newspaper company at that time, instead focusing on the fact that the guy staked the entire deal with $315m of his own money, quite a small amount of the $8b the total deal was worth. So basically, Zell won’t “lose billions” on this because he didn’t have billions at risk.
Clearly the bankruptcy is focused not on stemming cash bleed out but restructuring the big pile of debt they have on top of them. The ESOP will lose but apparently the pension fund is overfunded so it’s starting to look like an airline bankruptcy.
Tribune chief Zell has released a statement: “Over the last year, we have made significant progress internally on transitioning Tribune into an entrepreneurial company that pursues innovation and stronger ways of serving our customers. 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.”
I do find it curious that when a newspaper goes bankrupt everyone blames the economy, but when a car company is facing bankruptcy the universal truth is that it’s because they make crappy products. The truth is somewhere in the middle, in the case of car companies it’s because of product and inability to finance purchase issues, and in the case of newspapers it’s because they have gone out of their way to alienate so many segments of the market that they have no base of support, which when compounded by plummeting advertising rates and high labor costs, it all adds up to a big stinking pile of structural problems.