Chicago, IL

By A.B. Dada

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With the rumors circulating about the Chicago Tribune considering bankruptcy, one has to look at way more than the big picture.  The Tribune has a great core group of writers, but in reality the majority of management and the newbies at the corporation are just more of the same: trained in journalism colleges with no reality for what people want.

So when the other papers spew typical drivel and all repeat the same, you know they’re wrong.  They have to be wrong.

The Tribune Company has not defaulted on their debt.  The fear is that they’ll reach a technical default.  When a company owes money on a loan or a bond, they have to pay it.  If they don’t, it’s called a default: they missed a payment.  Imagine a car loan or a mortgage.  The Tribune’s problem is that their bonds outstanding have a clause that requires that they make a certain amount of money, and because of falling advertising revenue, the Tribune won’t meet those requirements.  This means that the Tribune can pay their bills, but the creditors are given the option to “call the loan” because they’re not making enough.

Imagine if you had a $3000 a month mortgage payment, but your income was cut 20%.  Now imagine that you have $21,000 in savings.  You have enough to make 7 payments without ANY income, but a similar clause would mean your bank could say “sell the house immediately” if you didn’t meet their income requirements.

I’m not expecting the Tribune Company to file bankruptcy.  Even if they do, it isn’t for the same reason the Mainstream Media is talking about: to renegotiate those bond clauses.  Most debt of the sort the Tribune owns has been sold and resold, and for the Tribune to find all of their debt holders and renegotiate would be a ridiculously tedious proposition.

In reality, the Tribune is using the hiring of bankruptcy lawyers to give them more time to realize some sales.  No, I’m not talking about the useless sale of Wrigleyville and the Chicago Cubs, which will never happen since the money isn’t there due to the credit crunch.  I firmly believe that Zell and cohorts want to move a few more items off their asset sheets, and I think we should realize who they will sell what to.

The Tribune Company is a partner in many media avenues.  One of their major partners is Gannett Company, who also owns the USA Today newspaper, along with a slew of other newspapers, TV stations, and land assets.  Gannett currently owns about 8 dozen daily rags, over 1000 weekly rags, and 2 dozen TV stations.  They trump the Tribune Company in available cash, net income and overall reader/watcher numbers.

The Tribune Company partners up with the Gannett Company in 2 areas that are regularly ignored: Metromix, a Gen-X online media site, CareerBuilder, a jobs listing site, along a few other minor areas.  The two main partner sites have very high potential, and I believe the Tribune Company can liquidate their shares for a reasonable price, with Gannett then taking the sites and running them to profitability.  Both sites are undermanaged, old fashioned, and unappreciated, but have pull in name alone.  Gannett recently acquired more of CareerBuilder, so I think that’s in the works.  At the share price Gannett paid for their expansion in September, 2008, the Tribune’s share of CareerBuilder is almost $500 million.  Metromix would sell for far less, probably in the $10 million to $20 million range, based on what Gannett paid in 2007 for their 50% share.

The other place the Tribune Company is lacking in is the LA Times, which includes not just the newspaper but the land assets (buildings, etc).  I believe that Gannett could afford to buy the LA Times wholly, and turn it into a fine rag again.  We’re talking huge numbers for the LA Times assets, which could bring the Tribune Company well over $1 billion in a fast sale.  With the amount the Tribune Company has in cash now, plus the sale of those assets (and not even considering the sale of other Gannett-partnerships such as Classified Ventures’ Cars.com and Apartments.com), the Tribune Company would be in a HUGE position to show their debt owners that they’re OK for a long time, long enough to outrun this recession.  The Tribune doesn’t need 10 years to get profitable and productive, it needs 18 months, even if the recession holds out longer.

With these things in mind, we still have to wonder IF the Tribune Company will actually file bankruptcy.  I still feel they won’t, but based on the theories I listed above, it won’t matter.  They need to liquidate these products and properties, and they need to do it ASAP.  Zell isn’t a dumb man, and I think part of the play for the Tribune last year was exactly this: to split the company up, liquidate certain assets, and then have a parcel of assets that he himself can buy at a significant discount from the “employee-owners.”  Only time will tell, but I wish people would stop focusing on the Cubs, and instead focus on pieces of the business that are easier to sell, and for far less money and regulatory requirements.

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