Monday, April 7, 2008

Sam Zell: A Tough Guy in a Mean Business

New York Times

Since taking control of the Tribune Company in December, Sam Zell has drawn a lot of attention in journalism circles for speeches laced with profanity, political incorrectness, insults and self-deprecating humor.

But all the twittering and tut-tutting over Mr. Zell’s remarks — and his suggestions that some reporting jobs are not needed — masks a more serious concern. With the newspaper industry going through an unexpectedly sharp contraction, Tribune is struggling under $12.8 billion in debt, and its financial condition has deteriorated, creating what specialists say is a very real risk of credit default in the next year or so.

That has forced the company to consider the sale of Newsday, one of its most profitable newspapers — precisely the kind of move Mr. Zell had said he did not want to make. “We didn’t do this deal to figure out what to get rid of,” he told the company’s flagship paper, The Chicago Tribune, last year.

Mr. Zell said from the start that he would sell the Chicago Cubs baseball team, but that deal has been delayed. Now, analysts say, Tribune probably needs to sell both the Cubs and another major asset like Newsday, and relatively soon, to remain solvent.

Of course, if this house is ablaze, Mr. Zell has supplied much of the kindling. Almost $8 billion of Tribune’s debt came from the highly leveraged deal, which he engineered, that took the company private. That borrowing now looms as the biggest threat to the company, at least in the short run.

“There’s very little margin of safety,” said Mike Simonton, senior director at Fitch Ratings. “The company needs to execute asset sales and cost cuts in order to make its debt service payments and offset the significant revenue declines.” [Click for MORE]

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