Wednesday, December 31, 2008

Year End Blowout

Here's a snapshot of what happened to the market value of newspaper companies and their stock in 2008. All information comes from Yahoo Financial.

-- McClatchy, Belo and Media General have almost as much (or more) debt than they are worth.
-- All stock prices are down considerably, two companies more than 90 percent.
-- Three companies are posting net losses. This doesn't include Tribune, which is not included in the list because it's not a public company anymore. However, Tribune is in the net loss column.
-- Profit margins are way down, by more than 50 percent at one company.
-- The companies collectively have more than $10 billion in debt, which is less than just one company: Tribune.
-- One company has declared bankruptcy: Tribune.

Share price = 74 cents, down 94 percent since beginning of ’08.
Market cap = $61 million
Company's worth = $2 billion
Outstanding debt = $2.07B
Profit margin = down 70%

Notes: Paid $404 million in debt in 2008. Laid off 1,400 of its workers, or 16 percent. Miami Herald reportedly on auction block. Posting net losses.

Share price = $7.02, down 60 percent in ‘08.
Market cap = $1.01 billion
Company's worth = $2.1 billion
Debt = $1.13 B
Profit margin = down 1%

Notes: Is looking to do a sale-leaseback of a portion of new headquarters to generate about $225 million in needed cash. May sell stake in Red Sox. Boston Globe reportedly for sale.

Share price = $1.56, down 40 percent
Market cap = $159 M
Company worth = $1.29 B
Debt: $1.14 Billion
Profit margin = down 21%

Notes: Spun off newspaper business into separate unit called A.H Belo in early 2008. Belo is now a “pure play” broadcast company.

Share price = $2.18, down 38 percent
Market cap = $44.6 million
Company worth = $36.5 million
Debt = $10 M
Profit margin = down 56%

Notes: Laid off 500 employees in ‘08, generating $30 million in annual savings. Salary freeze went into effect November ’08. Amended credit agreement. Robert W. Decherd, A.H. Belo's chairman, president and chief executive, will receive a salary of $600,000 in 2009, compared with $250,000 this year.

Share price = $8, down 79 percent
Market cap = $1.82 B
Company worth = $5.6 Billion
Debt = 3.91 B
Profit margin = down 25%

Notes: Laid off 3,000 employees or 10 percent of its workforce; does not reflect 1,000 job cuts in Gannett Community Publishing. Detroit Free Press (in JOA with Detroit News) will reduce home delivery days to Thur., Fri. and Sun; subscribers can view paper online or via single copy sales on other days. S&P placed Gannett on credit watch list. Acquired shares of Career Builder from Tribune. Posting net losses.

Share price = $1.73, down 98percent
Market cap = $118.9 million
Company worth = $122.9 million
Debt = $60.3 million
Profit margin = down 29%

Notes: Laid off 400 workers. Selling Rocky Mountain News and San Diego Union-Tribune. Closed the Cincinnati Post and Albuquerque Tribune. Posting net losses.

Share price = $390.25, down 52 percent
Market cap = $3.65 Billion
Company worth = $3.69 billion
Debt = $509 million
Profit margin = up 3%

Notes: Announced will share certain news content with Baltimore Sun. Washington Post Co. is not a pure play newspaper company. Its Kaplan education unit provides about $2 billion in annual revenue, or the lion's share of the company's revenue.

Share price = $1.75, down 91 percent
Market cap = $39.9 million
Company worth = $777 million
Debt = $750 million
Profit margin = down 62%

Thursday, December 11, 2008

Tribune and Blago

Now that's a juicy scandal. And what about that Blago hair?? Puts Elvis to shame.

Not being from Chicago, I am not going to wade in the murky waters of Chicago politics, except to say that the whole mess has given the Chicago Tribune a new lease on life. Perhaps this extends to all newspapers by showing how print can still chew on a meaty news bone. Apparently, the Trib has been ragging on Blago for quite a while.

Suddenly, newspapers are relevant again.

For now.

Let's remember that this is the same week in which Jon Stewart reportedly said, "Newspapers are black and white and all over." Ouch.

Tribune ESOP Under Investigation

Can't really verify if this is true, but a group called the Injury Board states that Tribune is under investigation (by whom I do not know, but presumably the federal government?) for possible violations involving its ESOP.

The story out of California alleges there may have been a "breach of fiduciary duties of loyalty and prudence to the plan's participants" connected with the possible purchase of over valued company stock and over leveraging the ESOP with debt. See violations...

The Injury Board states it is a group of personal injury law firms. Obviously, they want to represent Tribune employees who have been "injured."

Thing One and Thing Two

I've been trying to find info on a couple of things regarding Tribune's bankruptcy filing. Here's what I have found out so far:

ESOPs -- Seem to be safe for now, but that's only because the ESOP is barely a year old and has no distributions. As mentioned in earlier posts, the ESOP is great for Tribune because it provides a substantial tax benefit. Tribune does not have to pay corporate taxes because it is employee owned. There's also another benefit: ESOPs can borrow from banks, and both the interest and principal payments are tax deductible for the corporation, substantially reducing borrowing costs. ESOPs are not necessariyl great for employees, however, since ESOPs are totally invested in the company, in this case a bankrupt one.

The Wall Street Journal published the best explanation I've seen on this subject, titled "Tribune Filing Exposes Risks of ESOPs." See

Health benefits to terminated employees -- The bankruptcy court says health benefits to employees who took buyouts will continue for up to three months. That would extend to the second week of March, based on the date of Tribune's bankruptcy. After that, you may be on your own. I would even argue that this could change before then, if the financial situation continues to deteriorate, as is expected. See the Baltimore Sun's story about Thursday's bankruptcy hearing here,0,3266475.story. By the way, note that the correct term is terminated, not laid off.

401Ks -- They are safe, although Tribune stopped contributing to the 401K plan earlier this year.

Defined pension benefits -- Tribune has a defined pension plan that was phased out some years ago. It appears to be safe for now. However, the thing to watch is whether Tribune turns the pension plan over to the Pension Benefit Guaranty Corp., as other bankrupt companies have done in the past. If this were to happen, folks who earned the highest salaries under the plan would be most affected. The pension plan has more than $500 million in surplus assets. Tribune has used about $60 million of this for pension benefits for departing employees. See the Wall Street Journal story referenced above. Full disclosure: As a former Tribune employee, I am scheduled to receive a small pension when I reach retirement age.

Severance payments -- If you are owed severance payments or deferred compensation, get in line with other creditors. Tribune said it would discontinue these payments immediately.

Bear in mind that when a company seeks protection under bankruptcy, all this remains fairly fluid and is subject to change at any time. A second bankruptcy hearing is set for January 5.

Monday, December 8, 2008

What Others Are Saying

Here's the best of the posts on Tribune's bankruptcy filing as of Monday:

"Sam Zell's Plan D: It's All About Buying Time," Ken Doctor,

"Tribune Bankruptcy: Timeline of Company's Troubles,"

"Can Tribune Survive Bankruptcy?" Reflections of a Newsosaur,

"Inside Tribune's Newsrooms, Assurances of 'Business as Usual' as Outsiders Worry More Trouble Will Follow," Editor and Publisher,

"Tribune's Bankruptcy Snares Employees," Business Week,

"Letter from the Publisher," LA Times,,0,4109653.story

"Sam Zell's Memo to Tribune Employees," Editor and Publisher,

"Keeping Calm about the Tribune's Bankruptcy," Chicago Tribune,

"Tribune Files for Bankruptcy," New York Times,

'Perfect Storm' Hits Land

Tribune filed for bankruptcy protection Monday in Delaware, fulfilling the expectation of many that the company would buckle under the pressure of its $13 billion in debt. The questions was, how soon would it do so? Now we know.

Tribune's new owner Sam Zell characterized the financial situation as the "perfect storm." When the high pressure system of debt meets the low pressure system of rapidly declining ad revenue, you've got a storm. This tempest is not confined to Tribune's teapot. Storm clouds have been gathering over other newspaper properties and chains. But Tribune's bankruptcy filing is the first major indication that all hell is about to break loose:

  • The New York Times reported that the Miami Herald is for sale. The Herald is owned by McClatchy, which itself is laden with about $2 billion in debt from its purchase of Knight Ridder. The most valuable part of the Herald is said to be its waterfront property, not the newspaper.
  • Scripps has put the Rocky Mountain News, Colorado's oldest paper, up for sale. You knew that once Scripps entered a joint operating agreement -- remember them? -- with the Denver Post, the grave diggers were out somewhere digging a trench.
  • The New York Times has put its spankling new building up for collateral to the tune of $225 million. Asked on NPR this morning what headline he would write for his newspaper, Bill Keller, executive editor of the New York Times, responded, "We Will Survive."

Doesn't sound like much, but the truth is, many papers are not going to survive. The changes in the industry are too monumental to ignore and, like the economic free fall we happen to be in, nobody knows where this is heading. And let's be perfectly clear: Many newspapers are still profitable, they're just not making as much money as they had grown accustomed to.

In an interview with Portfolio, Zell threw down the naked truth: He wished he had been a newspaper owner during the last 4o years, instead of the last year. Those 40 years were obscenely profitable, attributed in part to newspaper monopolies from coast to coast that allowed newspapers to charge advertisers whatever they wanted. Newspapers weren't making money; they were printing it.

The mint has closed. Nobody's printing money anymore. Newspapers are going to be skinnier, will have significantly reduced staff and will have a limited print run.

However, blaming the restructuring only goes so far. Each newspaper company has its own peculiar tale of debacle. In Tribune's case, it was Zell's leveraged takeover of Tribune that was built on a mountain of hubris. Many stories have described the Tribune financial buyout as "complex," as if this explains why Tribune is bankrupt. There's really nothing complex about it. Zell bought Tribune by putting up little of his own money, making employees "owners" and thus qualifying for a big federal tax break, and borrowing billions at a time when Wall Street was awash with dough. Very simple.

What failed was Zell's calculation that he could pull it off and pay it off. Tribune already had $4 billion in debt from its disastrous purchase of Times Mirror. Zell added about $8 billion to that. Even in the best of times, $13 billion in debt is hard to pay down. During hard times like this, well fuggetaboutit. The bankrutpcy petition listed Tribune's assets at $7.6 billion, for a negative net worth of about $5.4 billion.

To be fair, how could Zell know the industry was about to collapse? Industry veterans didn't even know. Incredibly, some still talk as though this a cyclical change.

Filing for bankruptcy is not necessarily a disaster. It will give Tribune some breathing room to figure things out because the bankrupcy court will keep creditors at bay. If creditors and courts agree, Tribune may be allowed to stretch out its debt payments over a longer period of time, allowing it to retain cash. Under the best circumstances, it will pay only a portion of its debt, not all of it. (Somebody's going to get stiffed.) However, Tribune will have to submit a plan to the court as to how it's going to generate cash and pay debt.

If Tribune and other newspapers are banking on an asset sale to see them through, the bad news is, newspapers are not worth anything right now. Any newspaper property that goes on the auction block today is going to go for a dime. It's almost not worth selling, Zell and others alluded in coverage of the banruptcy. Newspapers may be tempest tossed, but the money they generate can help pay down restructured debt.

And so one hurricane season ends, and another begins.