Sale of Tribune Serves as Warning to Those Working in Corporate U.S.

I originally thought the sale of the Tribune Co. to Sam Zell was not relevant to the broader population, but I have since changed my mind.

Why? Because what is about to happen to the Tribune Company, and more importantly its employees, could set a precedent for the millions of Americans who work for large public companies.

What precedent? If this very public raping of a large American company for the benefit of its shareholders at the expense of employees succeeds, greedy stockholders may use it as a model to suck the lifeblood out of other industries. Make no mistake about this point: A company with a POSITIVE BOTTOM LINE is being sold into massive debt to enrich shareholders.

And even though I stand to gain oh, a couple thousand dollars from my own paltry number of shares in this company, I would PAY a thousand just to stop this stupid deal.

Let me explain in a graphical form what I think is REALLY happening at the Tribune Company, which has made double-digit profits the eight years I worked there:

It’s All About Debt
Tribune’s estimated market value	8.2 billion
Tribune current estimated debt	$3.6 billion
Expected new debt from sale	$8.4 billion
Total debt	$12 billion*

*Some reports have it higher.

How can anyone put a positive spin on numbers like that? If these numbers I culled from various stories are correct, there is a near tripling of debt load here. There are only so many ways to erase it: increase revenue, suck additional revenue from employees or cut costs. I have confidence that the last two methods will be employed, but not the first.

Keep in mind that none of this money is being used to improve the company. Instead, it is going to pay off shareholders unhappy with how much their stock is worth. If shareholders were forced to sell the stock on the open market, Tribune would not gain in debt and could take out a loan to beef up its existing businesses.

Why the Math Doesn’t Add Up
Current annual earnings before interest, taxes, depreciation, etc.	$1.3 billion
Current annual interest on existing debt	$274 million
Total EXPECTED annual interest payments	$1 billion (or more since Tribune’s bond status was downgraded to junk.)

Look how much more money will be needed to pay down the new debt. More than $1 billion dollars a year. Note how close the number is to revenue flow.

This load – and risk – will be on the backs of the employees and NOT the new owner as you will see below:

Giving the Company Away
How much Sam Zell is spending of his own money	$315 million upfront
What Zell gets for it	Control of the company
Sam’s payoff if the company increases in value	With a $500 million option that LASTS 15 YEARS, he can buy 40 percent of the company’s stock, ESOP notwithstanding.
Percentage of company’s estimated value Sam is spending to gain control	3.8 percent
Percentage of total debt Sam is spending to gain control	2.6 percent

If my math here is correct – let me know if I’m wrong – I could buy a company valued at about $2.6 million dollars with just $100,000 down. Try getting a mortgage with that little down in today’s housing market.

What It Will Cost Employees
Current pension fund value	$1.7 billion
Pension Fund to put up 15 percent in deal	$250 million
Percentage of annual pay into ESOP	5 percent
Percentage of annual pay to new cash balance pension plan	3 percent (This money apparently has guaranteed return and is the only good news I can find)
Layoffs or buyouts	Expected around in mid-April with more likely to follow

Sources: The Wall Street Journal; The New York Times; Nikki Finke at L.A. Weekly; The National Center for Employee Ownership 

Note: Numbers may vary depending on who you read.

As you can see, employees both current and PAST are putting their pensions at substantial risk without being asked. By the way, I’ve read previously that this may be perfectly legal because

America’s corporate pensions are amazingly vulnerable to boardroom shenanigans. Still, it will be interesting to learn if the pension fund in some way could stop this deal.

By the way, this is not the first time Tribune has messed with our pensions. Last year, it FROZE our ability to give into the fund last year, screwing people like me and lots of friends who only had between 1 to 20 years at the company. When I quit, they found a way to lower my future retirement payout by several more thousand dollars a year than I had been promised. Those who were at the company longer weren’t penalized as deeply, which is a whole other story.

But all of us in the pension fund now face the reality that we may see our benefits cut even further – or erased completely – if the company fails to survive all this debt. So my couple thousand dollar gain in stock value I mentioned earlier might be completely erased if the Tribune Company goes bankrupt. Just ask those folks at United Airlines.

While I believe in media companies, and I am optimistic about their long-term survival, putting our already hard-earned money at risk just to benefit the Chandler family and other investors is nothing less than a final insult to the working men and women of that company. Not to mention it may wreck the financial health of its current and future retirees.

Now do you see why this deal sets such a bad precedent for other Americans working in seemingly stable companies? You now are on NOTICE that everything you worked for may be taken away from you at any time. Don’t forget it.

Comments

Thanks for keeping us updated on this. After having read ally about your family, I knew you had a job and was a little curious as to what it was and how it was. Between that and the inherent interest in this story, I'm glad you are sharing it with us.

[brettdl]

My pleasure. Keep in mind, I don't currently work at a newspaper. I left in advance of this storm.

[chip]

wait, isn't this exactly what the "corporate raiders" did in the 1990s?

[brettdl]

Yeah, I guess I forgot about that.

[marc levy]

Questions:why is current management or owners allowing this? Is anyone looking at the pension fund guidelines more closely to see if they can even do this? Can anyone rally the employees to question the deal?

[James Robertson]

Here's the problem: newspaper sales are dropping, advertising revenue is dropping, and they haven't adapted to the web yet. It's either change or die; you seem to prefer that the Tribune stand pat; that's just a long term loss strategy.

Mind you, Zell is a clueless moron, so he's likely going to drive the company into the ground even faster - but sitting still to watch a slow death unfold isn't really an option.

[brettdl]

Marc: Hey there! (He's my brother, folks.)

Current management is being forced by the largest shareholder, the Chandler family, and other shareholders who want to cash out. I believe some people are just beginning to look into the pension guidelines since no one was expecting the pension to be drawn into the sale.

I think the employees may very well rally, but we'll have to see. Tribune employees have good reason to tread carefully.

James: I agree that newspapers have to do something, but more than doubling your debt load with none of that serving as investment money does not seem to be the prudent path.

I don't think Sam Zell is stupid at all. He's getting a company worth billions while taking on very little risk overall.

In fact, he's doing what a good businessman should do: buy the company for the best deal he can get. It's the Tribune shareholders that are acting irresponsibly.

On the other hand, I agree with your point about Google and search engine hits. I find more stories on NYT and LAT through Google News than their own website. It would be very worrisome if Zell's entire business plan centers on just getting Google and Yahoo to pay up.