In the latest blow to real estate tycoon Sam Zell's already tarnished legacy as a media mogul, New York Times media columnist David Carr reviews a new book about the banking deal that led to the bankruptcy of Zell's Tribune Company. The book, The Deal From Hell: How Moguls and Wall Street Plundered Great American Newspapers, was written by former Los Angeles Times editor James O'Shea and skewers Zell and bankers at JPMorgan, Citibank and Bank of America for approving the Tribune Company's $8.3 billion acquisition of the Times-Mirror Company, which owned the Los Angeles Times.
What Mr. O’Shea focused on was how the bankers — who he said should have known the deal would render the company insolvent — seemed to be too busy counting their fees to care. Here’s a note he found buried deep in court records from Jieun Choi, an analyst at JPMorgan Chase & Company, that demonstrated a breathtaking level of cynicism and self-dealing:
“There is wide speculation that [Tribune] might have so much debt that all of its assets aren’t gonna cover the debt in case of (knock-knock) you know what,” she wrote to a colleague, in a not very veiled reference to bankruptcy. “Well that’s what we are saying, too. But we’re doing this ‘cause it’s enough to cover our bank debt. So, lesson learned from this deal: our (here I mean JPM’s) business strategy for TRB but probably not only limited to TRB is ‘hit and run.’ ”
The acquisition ended up saddling Tribune with $13 billion in debt, leading to a two-year bankruptcy that resulted in diminished budgets and a declining editorial product for both flagship newspapers. It's somewhat fitting that Carr wrote the The New York Times's favorable review of the book, given his bombshell 4,000-word investigation of the Tribune in October of last year. Now the sins of Zell's over-reliance on fee-hungry bankers can be added to his other failures included in Carr's piece, which entail:
- Hiring radio executives such as Randy Michaels "who knew very little of the newspaper business" to run his newspapers.
- Allowing the office culture at the Tribune to devolve into a frat house-like environment. "Based on interviews with more than 20 employees and former employees of Tribune... executives’ use of sexual innuendo, poisonous workplace banter and profane invective shocked and offended people throughout the company," wrote Carr. "Tribune Tower, the architectural symbol of the staid company, came to resemble a frat house, complete with poker parties, juke boxes and pervasive sex talk."
- Screwing over his employees, who had an ownership stake in the company." More than the Tribune's creditors took a haircut," wrote Carr. "The shares that about 10,000 nonunion employees received in the ESOP [employee stock ownership plan] deal are now worthless as a result of the bankruptcy, although at the beginning of this year, the company replaced the ESOP plan with a cash incentive contribution. But if and when the Tribune exits bankruptcy, the value of the company will be worth substantially less than when Mr. Zell bought a controlling interest."
- Hurting the papers' circulation: In the first half of 2010, The Tribune's circulation dropped 9.8 percent and the Los Angeles Times' dropped 14.7 percent.
- Damaging his papers' editorial integrity. "While many media companies tried cost-cutting and new tactics in the last few years, Tribune was particularly aggressive in planning publicity stunts and in mixing advertising with editorial material," wrote Carr. That included putting advertisements on the front page of the paper that appeared to be articles.