“The definition if you bought something and it's now worth a great deal less, you made mistake,” Zell told Bloomberg Television yesterday. “And I'm more than willing to say that I made a mistake. I was too optimistic in terms of the newspaper's ability to preserve its position.”
Zell put $315 million in equity into the Tribune deal, which included a clause mandating he sell the Chicago Cubs, the US baseball team owned by the company.
There's not a long list of people who want to buy newspaper companies today.
The Chicago-based Tribune filed for bankruptcy in December, at which time it had around $13 billion in debt and $7.6 billion in assets. It had been working with lenders including JPMorgan, Deutsche Bank and KKR Financial to restructure its debt, which coupled with declining circulation and advertising revenues, made the company particularly vulnerable, Morningstar analyst Tom Corbett previously told PEO.
“If they didn’t have this debt, they’d be in a much better position to weather the downturn,” Corbett said. “The debt load creates an acute sense of urgency they might not [have] if they weren’t so leveraged.”
Zell pointed to the bankruptcy filing as a smart way to “stop the bleeding and preserve a great company”, and said every option was being considered for Tribune, though he noted the traditional newspaper model is broken. “The sooner we all acknowledge that the better. Whether it be home delivery, whether it be giving away content for free, I mean these are critical issues.”
He said a merger was an unlikely option for Tribune. “That’s like asking someone in another business if they want to get vaccinated with a live virus,” Zell said. “There’s not a long list of people who want to buy newspaper companies today.”
Avista Capital Partners is also struggling with its portfolio company, Star Tribune, the largest daily newspaper in the Minneapolis, Minnesota area, which Avista purchased from The McClatchy Company in a $530 million deal. Avista made a $100 million equity investment in the transaction, which it wrote down 75 percent at the end of 2007. The newspaper filed for bankruptcy protection in January.
Los Angeles turnaround specialist Platinum Equity has recently jumped into the turmoil of the US newspaper industry with its agreement to purchase the ailing San Diego Union-Tribune for an undisclosed sum. “We have a long history of creating value by helping established businesses facing complex operational challenges in declining or transitioning markets,” said Louis Samson, who led the acquisition for Platinum.
Meanwhile, Warren Hellman, co-founder of San Francisco's Hellman & Friedman, is working with a group of concerned citizens and investors to try and preserve the San Francisco Chronicle, which the Hearst Corporation has threatened to shut down due to spiraling operations costs. The Hellman group, which does not involve his firm, is considering options such as running the paper as a non-profit, akin to a public radio station structure, or as a limited liability enterprise, according to a Dow Jones report.