Sale of Chicago Tribune buoys hopes for US newspapers
Iconoclastic buyer sees profit potential in an industry that Wall Street shuns.
By Amanda Paulson | Staff writer of The Christian Science Monitorfrom the April 11, 2007 edition
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Chicago - Known for his love of motorcycles and disdain for suits, and without any media experience, Sam Zell is an unlikely savior for the nation's second-largest newspaper empire.
But some are hoping that his likely buyout of the Chicago Tribune and its many holdings may ultimately mean good news for the troubled company and a flagging industry – if for no other reason than it's a signal that a smart, iconoclastic investor sees good profit potential in an area that Wall Street is turning its back on.
The deal, which would burden the company with over $13 billion in debt, would also privatize it – a direction some say is necessary to foster quality journalism and long-term value over short-term profit pressures from shareholders.
"I think it's a good sign for the industry that a private individual and private groups are stepping forward," says Rick Edmonds, a media business analyst with the Poynter Institute in Fort Lauderdale, Fla. "Private investors seem to value these properties higher than the public markets do…. The people going in are looking to take a longer-term perspective and presumably will be willing to take some drop in profits" in the short term.
The deal, announced last week and yet to be finalized, involves an unusual financing structure. Mr. Zell is putting up $315 million of his own money, offering an $8.2 billion buyout that is largely debt (which will be added to the $5 billion in debt the company already has), and hopes to repay the debt in part through setting up an employee stock ownership plan (ESOP) that would provide significant tax benefits for the company.
The Tribune Company, which includes the Los Angeles Times, Newsday, Tribune Broadcasting, the Baltimore Sun, and dozens of smaller newspapers and broadcast stations – as well as the Chicago Cubs – has been up for auction for a number of months and attracted a fair amount of interest. But most backed off after examining the company's books. Zell won out over a competing bid from Eli Broad and Ron Burkle, a pair off civic-minded billionaires in Los Angeles.
In the meantime, the company has become a symbol of the woes of the newspaper industry, under pressure from declining readership and ad revenue.
The L.A. Times has been particularly troubled, with several editors and publishers leaving after demands for staff cuts.
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