Dec 15, 2008
The Tribune Company, owner of the Los Angeles Times, the Chicago Tribune, the Baltimore Sun and six other newspapers, and the Chicago Cubs, plus 14 television stations, just declared bankruptcy.
It went bankrupt not because its operations were losing money. On the contrary, its operations were turning a healthy 10% return, more than many profitable companies. No, it went bankrupt because of its crushing debt – 13 billion dollars, which swallowed up everything in order to service the debt.
This debt was put on the company in two big stages. First, the Chicago Tribune Company took on more than five billion dollars in debt when it bought the L.A. Times media chain. The second stage was when billionaire real estate tycoon Sam Zell took the company private, using the employee pension fund to provide much of the financing. Of course, in return, the employees received company stock.
Tremendous amounts of money were made when Zell took the company private. Billions went to the families that owned the Tribune Company, the Chandlers, McCormicks, T. Rowe Price and Barclays Bank. Top executives pocketed millions in bonuses, severance pay and stock options.
The banks sponsoring the loan arrangement also did just fine. Citigroup got 36 million dollars in fees; Merrill Lynch got 37 million and Morgan Stanley got 10 million.
What did the employees get? Thirteen billion dollars in debt, thousands of terminations, lower pension benefits if they get any at all, and worthless stock.
Whether buying or selling, the owners walk off with a fortune and leave a disaster behind – and it’s all perfectly legal in capitalist society.
Multiply this deal by the thousands of other deals just like this one made in recent years – and you have the recipe for the financial implosion tearing up the economy today.