Tuesday, December 9, 2008 0 comments ++[ CLICK TO COMMENT ]++

Tribune files for bankruptcy

Tribune, the newspaper company bought out by Sam Zell last year, has filed for bankruptcy. Readers may recall that I profitted from that LBO last year. Well, I don't know what to say. This is likely Sam Zell's biggest failure in his career. He warns people dancing near the graves not to fall into them but it seems that has fallen into one.

The Tribune takeover was a very advantageous deal for Sam Zell, whereas the rest of the equityholders (the employees) took on more risk. Sam Zell may end up losing a few hundread million on this bankruptcy, but if it had worked out, he would have made several billion. Having said that, although the ESOP (employee share ownership plan) took on high risk with very little upside (compared to Zell,) its losses are likely to be small since its equity contribution was very small (most of it was debt.) In other words, this is somewhat similar to those housing speculators who put down a tiny down payment and, even when housing imploded, only had minor losses whereas the lenders ended up with the big losses.

The Tribune filing may signal the end game for newspapers. We have seen numerous newspapers go down in the last few years but I can't think of too many that were as prominent as this (I'm not counting the Conrad Black fraud case.) If the lenders choose to liquidate the firm (low probability but I'm not sure who wants to keep funding the papers) then we may actually end up with situations with no papers being published in some markets. Although I think the Chicago and LA market papers will likely be around, it's not a certainty. Imagine Chicago without the Tribune or LA without the Times! You can see the stress in the market by looking at how The New York Times has been forced to collateralize future lending against its building. NYT has high brand value and has valuable holdings but think of the numerous other newspapers who have nothing other than newspaper-related equipment.

I still think there is an opportunity for the newspapers to do well. Well, Rupert Murdoch still thinks so. His stock might be down 60% but he is sticking with his newspapers.

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