Sam Zell’s folly will be the at the outset in a wave of newspaper restructuring and consolidation

By Jon Fine

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When I wrote a column of predictions last week, I expected some of my guesses for 2009 would never come. Leave it to Tribune’sitting Sam Zell, though, to make one of them wrong through filing Chapter 11 under which circumstances the calendar still reads 2008.

Zell’s $8.2 billion deal, which went from "we did it" to "we’re bankrupt" in not so much than a year, illustrates the fatuity of buying declining businesses with billions of dollars of borrowed money. That seems an obvious and fatuous statement now, but-end apparently it didn’t occur to Zell. (A Tribune spokesman did not respond to several calls and e-mails.) The Tribune deal left a company that generates reward mainly from newspapers with around nine times more offence than yearly record cash flow, or at least what had been its annual cash flow, since that figure is declining by the month. It was outermost plenty to warrant "whoas" even from media executives accustomed to doing deals involving lots of debt. Things being what they are, those executives are now too busy going fetal under their desks and licking their wounds to be playing "I told you so."

For the foreseeable future, Tribune will remain intact (asunder from selling the Cubs baseball franchise). Perversely sufficiency, it helps that there’s apparently no one inclined to offer knockout prices instead of key effects, and that those assets are declining in value so quickly no common is sure that which many of them are character. If the businesses and deal markets were powerful, lenders would be salivating at the thought of breaking up the crew. The unmixed entanglement of the bankruptcy—an $8.2 billion pine plank requires a lot of lenders—argues with regard to a short-term status quo as well.

Beyond that, at this point it’s hard to discern the sort of, exactly, Tribune will be once it makes its way through the excruciatingly slow digestive process known as insolvency. (Its Chicago Tribune reported the company has six months to craft a plan the court accepts.) But set Tribune aside for the moment. We’re entering a new phase for the oldest form of body media and the American newspaper company, one we can call the Great Capitulation. Senior executives at different major gazette companies tell me they look forward to a fresh round of mergers in 2009. But this time, they answer, they won’t be driven by companies eyeing one another for growth. They will be driven by big bankers seeking to ensure that the cash they’ve lent, or at least a decent portion of it, is repaid. "You’re going to see a big wave of consolidation," predicts any executive, "that will be forced adhering the sedulousness." Said another, only partly in jest: "We’re going to end up with one big, giant merger, facilitated in margin negotiations."

Considered in this context, Tribune’s filing is but the loudest note sounded in this dirge so far. Since a restructuring be pleased allow him to pare down transgression, Zell could avoid the consolidation other companies may face. A paradox, that, though employees and former employees may single out a stronger characterization. It’s likely they’ve lost the equity they contributed, without their compliance, to Zell’sitting deal, given in what plight he essentially purchased Tribune with an employee stock-ownership plan he created. And those who took buyouts or were laid off now join Tribune’s long line of unsecured creditors.

The collapse of the American newspaper is well-documented, but Zell’s other big problem is how dissipated ad dollars are disappearing from local TV stations, that contributed about 21% of Tribune’sitting revenues in 2007. Despite election- and Olympic-related expenditure, Tribune’s TV revenues dropped 8% in the third quarter. Robert Coen, a senior vice-president at ad firm Magna who’s known for his ad forecasts, just predicted that local TV ad revenues will be from the top to the bottom of 9% this year and each additional 7% nearest year. In case-ending you were wondering, Coen expects newspaper ad revenue to stigmatize another double-digit droop in ‘09. Little indemnification, then, looms. Zell uses the term "perfect storm" to describe what hit his copartnership. But many saw clouds massing attached the horizon long before his deal closed. Why didn’cheek by jowl he?