The Tribune was simply over-leveraged with a balance sheet made for this age of debt, leverage and bubbles.
Note the lack of equity and the enormous debt load. Why would anyone, especially someone as savvy as Sam Zell load up a declining business with this much debt? Was it greed, hubris? It seems inexplicable to me.
The Tribune bankruptcy was an entirely avoidable event. Yes, newspapers are declining businesses. Yes, we are in a deep recession and ad revenue is getting killed. But, this is a worthy franchise with lots of brand equity and other assets to sell. The owners got caught up in the credit/debt mania and soon they and their employees will be paying the price. Expect more of the same later in this downturn.
The publisher of the Chicago Tribune and the Los Angeles Times declared bankruptcy on Monday as the U.S. newspaper industry’s unrelenting loss of readers and advertisers claimed its biggest victim yet.
Tribune Co, which owns eight major daily newspapers and several television stations, filed for Chapter 11 bankruptcy protection after collapsing under a heavy debt load just a year after real estate mogul Sam Zell took it private.
Like other big U.S. newspapers, Tribune is under pressure from declining advertising revenue and circulation as more people get news online and as companies cut their marketing budgets because of the economy.
“The Tribune Co’s financial condition is symptomatic of the ills that plague the newspaper industry,” said Jerome Reisman, a bankruptcy attorney with Reisman, Pierez & Reisman.
Tribune’s bankruptcy filing is the latest chapter in the unraveling of the leveraged buyout boom which saw many companies bought by private equity firms and other investors ending up with massive debt loads.
Zell loaded up the privately held publisher with about $8 billion in additional debt when he took the company private in a transaction largely financed by company contributions to an employee stock option plan.
Like other big companies which took on heavy debt burdens during the private equity boom, Tribune is now being forced to find a way to cut its borrowings to an amount it can handle.
“This process of deleveraging America, whether financial institutions or Tribune, will be a long, slow and painful process,” said Duke University Law School Professor James Cox. “That’s what’s going to prolong this recession.”
Sources
Tribune Company 10-Q, Q3 2008
Tribune files for bankruptcy protection – Reuters
What Went Wrong for Tribune Co. – WSJ