Sam Zell's Deal from Hell: A "grenade thrower" on his way to "a big payday"

[DeepModem Mom]

Business Week: July 30, 2008
Sam Zell's Deal from Hell
The turnaround maven should have seen the problems ahead in the newspaper industry. His blind side may cost Tribune Co. its very life
by Emily Thornton, Michael Arndt and Ronald Grover

"It's the deal from hell," says Sam Zell, never one to mince words. "And it will continue to be the deal from hell until we turn it around." Zell is talking, of course, about his $8.5 billion purchase of Tribune Co. in December 2007, a transaction that's shaping up to be one of the most disastrous the media world has ever seen....He should have seen it coming. Tribune comprises eight newspapers, including the Chicago Tribune, Los Angeles Times, and Baltimore Sun, which together generate 76% of the company's revenues; more than 50 Web sites; 25 television stations, including superstation WGN America; a 31% share of the Food Network; the Chicago Cubs baseball team; and real estate and other holdings. Tribune had been slumping for years, courting buyers for more than 18 months before Zell ambled onto the scene in early 2007. Against that bleak backdrop, he loaded the already strapped company with more than $8 billion in fresh debt to pay for the deal, leveraging Tribune to within an inch of its life....

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Zell doesn't need Tribune to thrive; merely keeping it alive could earn him an astronomical return when it comes time to sell. That has always been the goal. "When we first undertook this project, we viewed Tribune as 60 ways to get lucky," Zell says. But amid the credit crunch, the quick asset sales haven't panned out. With the newspaper business deteriorating, his seemingly clever strategy has thrown the whole Tribune enterprise into jeopardy....

Many staffers are alarmed by Zell's open disdain for the newspaper business....Adding to the uncertainty, Zell has tapped some quirky characters with no newspaper experience to run key elements of the Tribune empire. Randy Michaels, the chief operating officer, is a former Clear Channel executive and onetime "shock jock" who worked for Zell at Jacor....Gerald Spector, the chief administrative officer who's overseeing the Los Angeles Times, is a Zell acolyte from the real estate business with a penchant for sweaters emblazoned with cartoon characters. Tribune's new chief innovation officer, Lee Abrams, a former XM Satellite Radio Holdings (XMSR) programmer, has raised eyebrows, too. In March he began firing off 5,000-word e-mails suggesting employees peruse his 108 blog posts on what's wrong with the media. "While my background is steeped in rock 'n' roll," he wrote in his first e-mail, "I strongly believe that News and Information is the NEW rock 'n' roll…The NEW rock 'n' roll isn't about Elvis or James Dean, but it IS about re-inventing media with the exact same moxie that the fathers of rock 'n' roll had. The Tribune has the choice of doing to News/Information/Entertainment what rock 'n' roll did to music."...

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The first round of cuts came in the form of buyouts intended to slice 2% of Tribune's workforce....

Operating chief Michaels conferred with publishers to find out how many pages Tribune could afford to print without breaking its debt provisions. In June he ordered that the ratio of ads to news shift to 50-50 instead of the usual 60% reserved for articles—meaning the so-called news hole had to shrink by 17%. The Baltimore Sun killed its stand-alone daily business section. The Orlando Sentinel ditched its stock tables. The Los Angeles Times announced it was merging sections devoted to books, opinion, real estate, autos, and a weekend calendar....

Zell, meanwhile, has no patience for what he views as the pomposity of journalists casting their profession as some kind of sacred trust. "If you want to tell people what they should want, become a professor," he says. "But if you're in the newspaper business—and I emphasize the word business—then you have to respond to what your customer wants."...

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None of the moves address the more urgent problem: Tribune's need for cash. It raised $630 million on July 29 by selling New York's Newsday, one of its most profitable newspapers....In June, Zell put Tribune's headquarters and the Los Angeles Times' property on the market....

And so the layoffs will keep coming. Tribune has axed 1,100 people thus far, with newspapers bearing the brunt. On July 2 the Los Angeles Times scrambled to cut 150 people, or 17% of its staff. It happened so fast that one editor said he didn't know whether to nod sadly or smile to his own staff members in the hallway because he couldn't recall who was on the list. One wonders what might have happened had someone else bought Tribune. Zell and his team have limited flexibility, but a different buyer might not have taken on so much debt. Zell says the casualties will be "significantly greater" by yearend, and he's unapologetic about that. "I knew that I needed to act as both the grenade thrower and the bomb deflector if we were going to get from here to there," he says. Getting "there," of course, would mean a big payday for Sam Zell.

http://www.businessweek.com/print/magazine/content/08_32/b4095000408330.htm

[DailyGrind51]

1. Since Zell's take-over of "The Chicago Trbune", letters to the editor

has been neutered out of controversy. They used to publish my letters and those of other more "political" readers, but now only select "positive" letters.

[gtar100]

2. If they want readers and viewers, all they need is to tell the truth.

Stop the spin. Ask the hard questions. Have no master but the calling to tell it like it is.

Sorry...just dreaming. Humans with a sense of humanity working for big media? What was I thinking?

[DeepModem Mom]

3. Actually, I know quite a few humans with a sense of humanity --

working people, like any others, who have been thrown out into the street jobless in Bush's economy under Zell's regime. Many others live in fear day to day that they'll be next. They are not, believe me, fans of George Bush or water carriers for the Right. Newspapering is an industry in crisis everywhere, but those under Zell's "leadership" are far less fortunate than others.