How is one to consider Sam Zell’s “purchase” of the Tribune Co.? We can be fairly certain that Zell, a “grave dancer” investor who is putting in $315 million and relying on an ESOP for the rest, didn’t win the auction because he wants to be a great citizen. That was the losing posture of the three L.A. billionaires (Mssrs. Broad, Burkle and separately Geffen). If you listened to them, they were going to pay a premium for preserving the prestige of the newspapers.
Instead, Zell apparently sees the value in the actual holdings, once the Chicago Cubs and SportsNet are stripped away (and probably Tribune Broadcasting and other properties as well). The holdings he is expected to build on, primarily, are The Los Angeles Times, The Chicago Tribune, The Orlando Sentinel, The Baltimore Sun and The Hartford Courant. On the online side, we also have the Tribune’s shares in CareerBuilder, Classified Ventures (Cars.com, HomeGain, Apartments.com), ShopLocal and Topix.
Can the value ever catch up to the valuation, which is apparently $8 billion? The sale of The (Minneapolis) Star Tribune last summer for $530 million, or a little less than half the $1.2 billion that McClatchy paid in 2000, raises many, many questions about that. My guess is that when Zell starts to sell off key assets, shear the upper middle class incomes of senior journalists, and pressure remaining union printing and sales contracts, more value will certainly be established even as negative trends in newspaper retail and classified advertising and circulation continue. No matter what happens, he still has a profit margin of 18 percent to 21 percent to play with for at least a couple of more years.
When (and if) he gets around to fully leveraging the papers’ local targeting capabilities and Tribune’s equity in the online properties, the value might even reach the point where it is ready for another sale. As always, the development of local targeting capabilities is key here. This is assuming, of course, that the public won’t be alienated by shoddy marketing and journalism, and second-rate technology. There is already some of that (but not as much as the journalism community contends).
We don’t actually know if Zell has any master plans for the properties. From what I can tell, however, Broad, Burkle and Geffen didn’t have real plans either (and they may still be able to bid against each other to buy The LA Times, albeit at a higher price when it is “improved”).
Ultimately, Zell makes no pretense of having any expertise in the news business, or local directional marketing. The New York Times contends that he got the nod over the L.A. guys mostly because Tribune hates Los Angeles (and executives there) so much. That seems like an overly simpleminded explanation.
But personalities do seem to have played some role here. Notably, according to the official statement, CEO Dennis FitzSimons is being invited to stay on the board, rather than being totally purged, which would probably have been the case if any of the three L.A.-based players had won. The continuity will have some importance.
The most likely course of action, however, is that Zell will simply take the company private and make major changes without all the intense scrutiny of being a public company. This is sort of Brian Tierney’s game plan with The Philadelphia Inquirer and Philadelphia Daily News. In Philly, there are a lot of politics involved, and already, it is one nasty fight.
What’s it going to be like to work at a Tribune company division? One side of me says it won’t be any fun. But another side says that change is inevitable in the newspaper business, that this might be a necessary step in the fight for survival, and that no one would dare to (further) shortchange the online side at this point.