I Think I Finally Figured Out What's Been Bugging Me About the NYT Piece on TribCo | Bleader

Friday, October 8, 2010

I Think I Finally Figured Out What's Been Bugging Me About the NYT Piece on TribCo

Posted By on 10.08.10 at 12:47 PM

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I think it boils down to this passage:

“They threw out what Tribune had stood for, quality journalism and a real brand integrity, and in just a year, pushed it down into mud and bankruptcy,” said Ken Doctor, a newspaper analyst with Outsell Inc., a consulting firm. “And it’s been wallowing there for the last 20 months with no end in sight.”

Oh please. Get ready to turn your pagers back.

Here's Carr:

Advertising has been inserted into The Los Angeles Times in new and unsettling ways.

For instance:

The paper's publisher had agreed to split $2 million in advertising revenue from a 164-page, staff-produced magazine with L.A.'s new Staples Center sports arena - subject of 22 flattering, upbeat stories in the special Sunday section, published Oct. 10.

Oh, sorry, that was from a 1999 San Francisco Examiner piece. The brains behind that deal was the "cereal killer," Mark Willes, the then-Times Mirror CEO, a notorious corporate hatchet man with no journalism experience:

By the summer of 1995 the Mark Willes story had barely started. In the next four years he would cut again and then again. He would trumpet radical changes that he so far has not been able to make work—the walls between the newsroom and the business side of the Times had withstood the bazooka assault. He would make promises that seemed as ephemeral as the seaside mist in Santa Monica—pledges to "grow" the Times through circulation gains of 500,000, then 1 million, foundered. He would astound almost everyone by naming himself publisher in what bordered on a coup d'état. He would astound them even more by quitting as publisher after only two years and naming a protégé, also with no newspaper experience. In less than six months the protégé, Kathryn Downing, the fifth publisher of the Los Angeles Times in 10 years, would be scrambling to survive after a series of small "outside the box" missteps and one huge one. Newsroom morale had plummeted lower than at any time in the newspaper's dreadful decade—so far down from the five that Otis Chandler, at 71, concerned about "my friends" and his place in history, would surf back briefly out of the Pacific sunset. (There is an oft-told story about a former city editor, Noel Greenwood, who got so tired of hearing that "this wouldn't happen under Otis" that he finally declared to the troops, "Otis has gone surfing and he's not coming back.")

Sure, Willes is long gone, having departed when TribCo bought Times Mirror. Yet Willes, as of the time Tribune Company filed bankruptcy almost a decade later, was still owed ELEVEN MILLION DOLLARS, about twice what the top 10 TribCo execs were controversially paid in 2009. His golden parachute even included a goody bag.

Back to the NYT piece. Carr:

The $8 billion in new loans used to finance the deal left the company with $13.8 billion in debt. But Mr. Zell was convinced that by quickly selling the Chicago Cubs and other assets while improving operating margins, the company could emerge as a valuable property. It was typical Zell: a risky approach to gain control over a large, distressed asset while minimizing his own exposure . . . .

By comparison, here's the Washington Post's Allan Sloan, writing in 2005 about some hinks in the Times Mirror deal that came back to bite TribCo in the ass:

Before we proceed, you should know that Tribune's tax loss is my gain. When Times Mirror did the 1998 deals that now haunt Tribune, they smelled so bad that I wrote a column predicting the Internal Revenue Service would try to knock them out. More disclosure: I worked at Newsday when Times Mirror owned it, and wrote several columns there (and more at Newsweek) criticizing tax games played by Times Mirror and its controlling Chandler family.

To give you the short version, in 1998, Times Mirror claimed it had disposed of its Bender legal-publishing and Mosby health-publishing businesses in a tax-free way. Times Mirror got the use of $1.8 billion of cash, while the companies that forked over the cash got Bender and Mosby.

Times Mirror told the IRS that these were tax-free corporate reorganizations, but told Wall Street it had made more than $1 billion on the transactions. Just in case it had to ultimately cut the IRS a check, Times Mirror set up a $180 million tax reserve. But this was just an accounting entry that reduced the reported gain on the transaction — there was no cash set aside. After Tribune bought Times Mirror, it began adding interest to the reserve, which is now about $250 million.

The reserve offsets some of the damage to Tribune's earnings statement, but doesn't make it any easier for Tribune to come up with $1 billion of cash money to pay federal and state taxes and years of interest. Times Mirror's shareholders are long gone, and now it's Tribune that has to pay.

Here's David Shaw and Sallie Hofmeister, writing in the Los Angeles Times in 2000 about TribCo's takeover:

In either case, the offer represents a premium of almost double Friday's closing price of $47.94 for Times Mirror stock. That offer would be good for up to 28 million of Times Mirror Class A shares, which represent nearly 42% of the outstanding Class A and Class C shares. If the tender offer is fully subscribed, Tribune Co. will pay out $2.66 billion in cash. Tribune Co. also will assume $1.4 billion in Times Mirror debt.

The premium is one of the highest ever paid for a publicly traded company.

Reading Carr's piece, I'm reminded of what David Broder once told Sally Quinn about Bill Clinton (in a quote that's become legendary among left-wing blogs dwelling on establishment press myopia): "He came in here and he trashed the place, and it's not his place."

Carr presents a sneering indictment of Zell, Michaels, and their management structure. And heaven knows they earned it. But it wasn't just them. An independent examiner brought accusations of "intentional fraud" in Zell's takeover, but the principals were both veterans of the previous regime:

"Chandler Bigelow, a company treasurer who was promoted to chief financial officer after Zell took over, and former Senior Vice President of Finance Donald Grenesko falsely assured the deal's financiers that the company had an opinion from Morgan Stanley that it could refinance debt in 2014, the examiner said. The assurance, which Morgan Stanley told the examiner it never gave, was essential for Zell to complete his debt-loaded takeover."


"The Klee report casts a harsh light on Bigelow and Grenesko as the two who worked to close the last stage of the deal, called Step Two. It called for $3.6 billion in financing to, among other things, pay Tribune stockholders $34 a share. Both men, Klee noted, were in line for financial gain in closing the deal; each was entitled to a $400,000 bonus, while Grenesko received $4.47 million for selling his shares.

"Klee does not blame Zell or aides for involvement in any fraud. But he notes the pressure they applied to complete the sale and suggests Bigelow cooperated because he expected Zell would retain him at Tribune. Klee has a memo from Zell associate Nils Larsen, now a Tribune executive vice president, that listed Bigelow as one of three Tribune insiders who could be trusted to 'drink the Kool-Aid.'"

Chandler Bigelow is a friend of former CEO John Madigan who came to TribCo in 1998. Grenesko arrived in 1980; here's what Don Zimmer has to say about Grenesko.

I might be reading too much into it, but the impression I got from Carr's article is that the collapse of TribCo is being foisted off on a trashy Clear Channel culture that was dropped on the institution by Zell (about which Eric Boehlert has done a pile of reporting, some of which makes Carr's steamy indictment look like a Who's Who entry).

And Carr makes a convincing case. But it should be taken in context. As Carr points out, Zell and Michaels took over a company that was ripe for the plucking. But it was ripe for a lot of reasons—old debts and mismanagement from the Times Mirror takeover and the acquiescence of existing management, among others.

And the Tribune Company wasn't remotely alone. As Ragan's "PR Junkie" blog notes: "Media watchers in Chicago, especially readers of longtime Windy City media columnist Robert Feder, mostly shrugged off the story, although it still set blogs and Twitter feeds ablaze. "

Well, no shit. The Tribune and the Sun-Times were both simultaneously in bankruptcy following mismanagement—and it's obviously been argued in courts of law that it was financial mismanagement bordering on or tantamount to fraud. You may also recall that a little paper called the Chicago Reader was plunged into bankruptcy when it and its sister paper were also bought with a lot of borrowed money just before the economy tanked for real.

So yeah, a lot of us shrugged. Those of us in the industry have watched a series of ill-timed decisions wreck a lot of careers in the past few years, so it's hard for me to get specifically exercised about Zell and Michaels (and you may have noticed a rash of mismanagement in other industries over the same period that, like, brought the national economy to its knees). Zell, Michaels, et al certainly deserve what Carr gave them. But the rot's a lot deeper.

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