Last updated: December 8, 2008 10:53 pm

Tribune

You win some, you lose some. But those crowing over Sam Zell’s mis-step in acquiring Tribune are stuck in an Esop fable. The real estate mogul, nicknamed “the gravedancer” for his ability to sniff out attractive but distressed assets, was unable to turn round the debt-laden media company the way he did so many times before with office buildings and shopping centres. It is Tribune’s employees, though, who stand to lose a far more substantial slice of their wealth than Zell at the worst possible time through their now worthless employee stock ownership plan (Esop).

Mr Zell, who famously unloaded his office building empire at the height of the market to Blackstone Group for $36bn, had little to lose by committing just $315m in cash to Tribune’s leveraged buy-out. As sale prices for assets such as the Chicago Cubs baseball team and the Food Network slipped, the company’s core operations were unable to support its crushing debt load of nearly 10 times unlevered cash flow. Publishing revenue fell by 13 per cent last quarter, in line with the broader industry, while broadcasting and entertainment fell about half as much with little prospect for a turnround soon.

To some observers, particularly the journalists who ridiculed and disliked him, the moral of the story is that Mr Zell’s clumsy attempts to slash costs and streamline news production has devalued the iconic properties he controlled. The real lesson – coming at a painful time for lenders – is that loading so much debt on an “old media” business in secular decline was foolhardy, particularly since the principal’s financial downside was far lower than his upside.

And employees, who now face huge uncertainty, should have been more sceptical in supporting a deal that put their livelihoods and their savings at risk simultaneously. Staff have had their knees cut but the gravedancer can still look for other partners.

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