More news of M&A mishaps

The latest financial and economic crisis has hit the newspaper industry hard. Here in New York, we got a taste of the trouble back in September, as The New York Sun, which fancied itself as a more thoughtful and balanced alternative to the Times, went belly up after failing to secure financing for continued operations. Quoting workers at the defunct paper, the Times reported that the paper’s staff “worked in a 19th-century building with 19th-century conveniences.” The Sun was a shoestring operation, to be sure, constantly straining against its limited resources – it really didn’t take a massive financial crisis to sink it.

But now there are reports that the venerable Tribune Company, publisher of the Chicago Tribune and Los Angeles Times, is filing for Chapter 11 bankruptcy. The Times’ Andrew Ross Sorkin has a fine account of the unique issues in the Tribune’s fall, particularly the unsavory presence of real-estate mogul Sam Zell. Zell bought the Trib at the height of previous M&A cycle for over $8 billion, a price that in retrospect seems bloated beyond any and all good sense. But such were the days when excess leverage and liquidity juiced up the prices of acquisition targets across multiple industries.

Zell immediately took a knife to the company’s operations, firing corporate staff and leaning on newsrooms to cut costs, the very people that Zell had cleverly saddled with much of the risk from the company’s acquisition, or as Sorkin reported,

“Mr. Zell financed much of his deal’s $13 billion of debt by borrowing against part of the future of his employees’ pension plan and taking a huge tax advantage. Tribune employees ended up with equity, and now they will probably be left with very little.”

Sorkin reported that, after the take-private transaction was completed, the outgoing Chief Executive Officer, Dennis J. FitzSimons, made approximately $40 million all told on his way out of the door. Nothing makes a take-private deal slide along like having management in your pocket. But to FitzSimons’ credit, as the steward of shareholders’ interests, he sold at precisely the right time…most of the Trib’s peer newspaper companies have suffered catastrophic declines in their share prices. The Trib’s shareholders came out smelling like roses. Its employees? Not so well.

Meanwhile, the bankers charged with fairness opinions, solvency opinions, and the like did precisely what you would expect – they rubber-stamped the deal…hard not to when you stand to rake in another $47 million by providing financing for the deal.

This situation urges a question on us: were there any large M&A deals in 2006 and 2007 that actually helped the acquirer’s long-term competitive or financial footing? It seems we’re encountering one disaster after another, no matter whether it was a strategic acquisition or the acquisitions of financial buyers.