Wednesday, August 15, 2007

Sam Zell To Speak At LAT In Period Of Crisis

Sam Zell, the Chicago real estate magnate and part time Malibu resident who has initiated a purchase of the Tribune Co., will appear tomorrow morning (Thursday, Aug. 16) in Los Angeles to speak to L.A. Times managers. His appearance comes at a time when the economic situation in the country is somber, credit is drying up, and some Wall Street analysts have said the purchase deal is in jeopardy.

Zell has a proven record of taking distressed properties and turning them around. But even if it is assumed that he would not have total control of Tribune Co. until the end of the year, it still must be said that in this instance he and other members of the Tribune board of directors have let the situation drift dangerously.

The Times and other Tribune newspapers have seen a near free fall in both advertising and total revenue this year. That nose dive, and doubts the Zell purchase will be consummated, have led to a sharp downturn in the price of Tribune Co. stock, as of this morning to nearly $10 below the $34-a-share price that Zell offered last spring to take the company private. It closed yesterday at $25.28 after trading as low as $24.45. Such a gap between that and the Zell offer explains why the analysts now doubt the deal will go through.

So far, Tribune management has vowed it will. But that management is part of the problem that Zell so far has failed to take steps to correct. It is a hare-brained management, under CEO Dennis FitzSimons, that has spun the company into ever greater debt while making cutbacks in content and staff at the Tribune newspapers that have so turned off readers and advertisers that both circulation and advertising have been in the nose dive.

Another problem is that FitzSimons' known antipathy to everything Californian has caused a crisis of confidence in the company in California. Californians do not like losers and, pending a possible improvement under Zell in the company's view of its California interests (the L.A. Times remains easily the largest of the Tribune-owned papers, and a better paper still than the lackluster Chicago Tribune), the view among many Times readers and other Californians is that the company is indeed a loser.

The fact that the third publisher and third editor Tribune has had in Los Angeles in the seven years since it bought Times-Mirror -- David Hiller and James O'Shea -- have allowed an impression to spread that they are simply Chicago toadies, has compounded the problems at the L.A. Times. Hiller has foolishly even said he will place ads on the Times' Page 1. At this point, only an ouster of these two and the appointment of true Californians as publisher and editor could aright matters. For the good of the Times, they must go, and quickly.

Whether Zell will say anything to Times managers Thursday morning that will be reassuring on any of these points is dubious. So far, like James Buchanan at the advent of Southern secession leading to the Civil War, he has let the situation worsen without taking any steps to ameliorate it.

But Zell is no Buchanan, based on his successful business record. Maybe, he will surprise us one day and take charge, hand present management its walking papers and install new management that will take the company out of its tail spin.

The Dow Jones publication, MarketWatch, this morning discusses the Tribune situation in mixed terms. Recording the stock price decline and doubts that the Zell purchase will go through, its article begins, "Tribune Co. shares were down nearly 5% at one point Tuesday, an apparent sign of mounting concern over the viability of a plan to take the media conglomerate private, but sources close to the deal say the proposed transaction remains intact."

Although MarketWatch quoted an unnamed source "with knowledge of the deal" as saying financing remains in place for the transaction worth $8.2 billion, the story went on to say, "Zell would not comment for this story, and Tribune representatives did not return phone calls."

At Tribune, this is par for the course. As bad tidings pile up, Tribune managers shut their mouths. They are like the proverbial monkeys that speak no evil, see no evil and hear no evil.

MarketWatch observes, "Tribune's recent second-quarter earnings report showed plummeting ad revenue, particularly at the Los Angeles Times, where circulation has taken a beating in recent years. In a dismal environment for the newspaper industry, even such notable companies as Dow Jones & Co. have been forced to reconsider their options...

"The Tribune deal, in particular, is a source of concern, since it hinges largely on the viability of an employee stock ownership plan that would assure a large amount of debt. Steeply declining ad revenue could potentially push that debt burden to its breaking point."

Not to mention leaving the employees' 401.ks in dire straits.

If Zell fails, there still may be an opportunity to sell the Times to Los Angeles moguls, such as Eli Broad, Ron Burkle or David Geffen. Unfortunately, however, the paper is worth far less today than it was last year, when such a deal was highly possible, and actual bids were made, only to be declined by the Chicago-dominated Tribune board.

Zell will speak today at a time of an intensifying mortgage crisis that has seen vaunted hedge funds collapse, the Federal Reserve board seem toothless and the entire stock market shoot downward. Just this morning, the L.A. Times Business section leads with a story that home sales in Southern California are down 27% and a second story reports that the nation's largest mortgage lender, Countrywide Financial, is saying that foreclosures and delinquencies have reached a five-year high. The New York Times, meanwhile, reports that even money market mutual funds have come under pressure.

Whether Zell can do anything today to restore confidence is a great question, although no doubt he would create a good impression if he fired Hiller on the spot.

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