Tuesday, December 9, 2008
The Road to Zell
Before you say Sam Zell got what’s coming to him, stop. He didn’t.
His Tribune employees – those on the front lines that write, produce, print, and distribute the papers didn’t deserve this.
True, Zell tries to come off like one of the guys. He drinks, he swears, he tells jokes.
He’ll even put his arm around an employee or two.
He thinks of himself as Jane Goodall - observing the apes by living among them.
Sure, his employees technically own the joint with Zell under his employee stock ownership plan. But let's face the facts here. The only way they’d ever have a prayer of making out in that deal is if Zell found a greater fool to buy it.
Too bad there aren’t any left.
Even the young Saudi Princes can’t be conned any longer. Just ask Michael Jackson.
Don’t feel bad for Zell. It’s only Chapter 11 – not Chapter 7, which is liquidation. This allows him to reorganize – and also purge any contracts or deals he’d rather not honor.
Or Zell and his Machiavellian posse could make a quick exit, taking the Cubs and the few other chattels not integrated in the Chapter 11 filing, and leave the Trib mess for others to clean up. Sound familiar?
Let’s turn the calendar back to Saturday, September 26. 2008.
I hear it was quite the party.
No, I wasn’t there. My invitation must’ve gotten lost in the mail.
Every couple of years or so, Sam Zell likes to throw himself a birthday party and invite an intimate gathering of around 800 of his closest friends and colleagues and cloak it as a magical mystery event.
This time around, guests were bused to the corner of Halsted and Archer and welcomed into a 15,000 square foot circus tent. In addition to the Fellini-esque costumed characters, performers and booths, guests were treated to a private concert by the Eagles, while dining on fine food and chugging down top-shelf liquor.
The last time I checked, the Eagles were charging between $6 million and $8 million for a private party performance.
Maybe Sam didn’t get the memo about trimming the party budget this year?
It’s not quite AIG spending $440,000 of its $8 billion taxpayer-funded bailout on a weekend retreat or the Big 3 auto CEOs taking their private jets from Detroit to Washington to claim poverty – but if you’re thisclose to bankruptcy, you’d think….
Now, let's party like it's 1992.
Terry Jacobs’ Cincinnati-based Jacor Communications was on the brink of bankruptcy.
Sam Zell picked up its scent, met Jacor’s broadcast head Randy Michaels and – maybe it was their penchant for dirty jokes and dirty tricks done dirt cheap – they hit it off.
Zell was known for buying undervalued assets, building them up, and then spinning them off for a tidy profit.
He affectionately called himself the Grave Dancer.
Michaels sold Zell on an opportunity. The FCC had just approved duopolies, allowing one broadcast company to own up to two FMs and two AMs per market.
Duopolies were the precursor to the imminent 1996 Telecommunications Act, whose poorly-written radio ownership revisions allowed nearly unrestricted ownership of radio stations by a single company.
Zell bought Jacor for $70 million – considered a pretty steep price at the time – and when the Telecom bill became law, Michaels took Zell and his credit on a shopping spree.
Their shopping cart filled quickly with radio properties from Noble Broadcasting, Citicasters, OmniAmerica, and Nationwide.
Michaels also added two radio syndication companies, Rush Limbaugh’s EIB Network and Premiere, and a television station, WKRC in Cincinnati, an ABC affiliate to Zell’s shopping cart.
Within a few months, Jacor had become the third largest radio group in the U.S. – and certainly the most influential in the brave new world of radio management and programming structure.
In 1999, Zell sold Jacor –230 radio stations in 55 markets - to Clear Channel, another company that was buying up properties at a rapid clip – for $4.4 billion. Zell was also successful in persuading the company to install Michaels as its radio division’s CEO, a position he held for three years.
That brings us to the here and now.
Both Zell and Michaels enjoyed many adventures since then and reunited in late 2007 when the former took over Tribune and installed the latter as its executive vice president. Zell put up roughly $300 million for an $8.2 billion empire.
And that’s who he is – the people he attracts and those that he keeps around him.
Then there’s Local TV LLC, a founded in December 2007, made up of nine former New York Times-owned stations. Randy Michaels was its CEO until Zell did the Tribune deal. Then Michaels jumped to Tribune and formed a “broadcast management company” to oversee Local TV’s operations. The following day, Local TV picked up eight TV stations Fox put up for sale to help finance their Dow Jones deal. Local TV is owned by Oak Hill Capital Partners, a private equity firm, founded by Robert Bass.
In total, the Trib oversees 23 TV stations.
Zell did what anyone in his position would do when borrowing money. You spend it all and you spend it fast.
His deals are always intricate and well planned. He layers transactions on top of transactions in a pyramid that is so inscrutable his finances are nearly impossible to trace.
Here’s my suggestion to Zell.
Call your party planner – the one that handled your birthday party in September.
Did you check the Trib’s Chapter 11 filing list of creditors? The thing runs 2,387 pages.
You had a 15,000 square foot circus tent for your 800 guests, right?
I figure you’ll need at least a half dozen tents to handle your creditors – even if only a few show for the hearing.
Now, that’s a party.
One question. Will it be a Fellini theme or a Lynch?