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The Worst CEO

Sam Zell never really had much skin in the game. Last year, when he purchased the Tribune Company, which filed for bankruptcy today, he put up $315 million of his own money and paid the balance of the purchase price, $8.2 billion, with the employee stock ownership plan – a move in which Tribune employees had no say whatever. But that actually overstates the amount of Zell’s investment. Of the $315 million he sunk into the company, it turns out that $225 million was simply a promissory note. Due to the vagaries of bankruptcy law, writes business analyst Mark Lacter on, that means that Zell has better protection for his stake than all his employees. Trib’s ESOP holds 100 percent of the company common equity – and it’s the holders of common stock who usually take a bath, or get wiped out altogether, in the debt restructuring that goes on under Chapter 11.

In his memo to his employees this morning, Zell wrote, “in general, the existing benefits in the pension and cash balance plans are also unaffected by the filing.” To quote Lacter one more time: “In general?”


Even when measured against today’s sub-prime standards for CEO performance, Zell is in a class by himself. The CEOs of the Big Three auto companies may have paid a good deal less attention to the quality of their cars than they should have, but Zell repeatedly and profanely expressed his disdain for quality journalism. The company’s leading papers, the Chicago Tribune and the Los Angeles Times – the latter one of the four great American newspapers – carried too much national and international news, he decreed. Hundreds of excellent reporters and editors were unceremoniously shown the door; the Times lost its Sunday book review and opinion sections; the Washington bureaus of the papers were consolidated and cut back at the very moment when readers are following decisions made in Washington more intently than they have in decades.

When the Tribune company’s former owners elected to sell the company to Zell, they bypassed some other potential buyers, either of the company or its constituent papers, who were actually willing to put up their own money to make their purchases. In Los Angeles, David Geffen, Eli Broad and Ron Burkle all tried to buy the Times, but the Trib board wanted to sell to a fellow Chicagoan, even if he had no regard for journalism. In the end, not only has Zell lowered the quality of some great and good papers, but he structured a deal so laden with debt that he’s plunged his company into bankruptcy, too. Even if – an operator, that Zell – he’ll come out of it a whole lot better than the employees whose ESOP he dragooned.

POSTSCRIPT: The Tribune internal Q&A website on today’s bankruptcy filing states that "all ongoing severance payments have been discontinued.” So if you’re one of the large number of reporters, editors and other staffers at the L.A. Times, the Chicago Trib or other papers who got sacked and didn’t get your severance in one lump sum, you have a real problem. A sit-down strike, such as that currently being waged in that Chicago door and window factory, seems a fitting and proper response, though you’ll need help from those of your former colleagues still employed to get back into the buildings.

By Harold Meyerson  | December 8, 2008; 4:29 PM ET
Categories:  Meyerson  | Tags:  Harold Meyerson  
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while the newspaper business has been slow to react to the new digital reality and has been responsible for many of the problems which have decreased its profitability, Mr. Mr.Meyerson's fundamental point, that Sam Zell had no interest in "operating" his company, only in reducing costs and squeezing a bit more bottom line out of the carcass is valid.

Zell has worked his magic in buiding a huge personal fortune with the same modus operandi primarily with real estate properties. Guess he thought he could impose the same game plan on a different business.

Had someone with a better understanding of the media business and with a bit more patience bought Tribune last year the outcome might have been different. But, even with experienced operators the various properties in the portfolio would have had to impose staff cut backs and greater efficiencies to keep the enterprise profitable. In that sense some of the employees laid off under Zell would have had a bit more time, but not much.

Posted by: bobfbell | December 8, 2008 5:07 PM | Report abuse

Zell sounds awful, but surely "the Worst CEO" can only be G.W.Bush, self-proclaimed CEO of America, Inc.

Posted by: kevrobb | December 8, 2008 9:56 PM | Report abuse

At first glance, I was inclined to agree with kevrobb. Especially since I am an honest and hard working, tax paying, middle class parent, with college age children, and I foolishly believe that the US Constitution still stands for something real. But Bush has Jaded all that. So Zell sounds like the next best thing to the worst CEO ever.
Aren't there laws that protect a worker's retirement fund from being raided by the company's owners? Aren't there laws that protect the citizens of a country from a rogue, despotic leader who engages the country in acts of military aggression for personal or monetary gain, or to perpetuate a religious ideology?
I live in L.A. and have been a daily Times reader for the last 20 years. I admit the changes Zell instituted have not improved the paper’s accessibility or readability one bit. The new layout seems to provide more annoying ad space. It is papers like these that are turning readers to online news services.
But this again sounds like the flow chart for the standard major CEO/Presidential game plan: run the business/ country into the ground, destroy its reputation/integrity, initiate hostile take- overs / start illegal foreign wars, only consider the needs of the investors / hedge fund operators, as important, and insulate yourself against prosecution with layer upon layer of sacrificial ”yes men”, then pardon them all after the fall.

Posted by: appelshock | December 9, 2008 12:13 AM | Report abuse

I find it incredible that the reasons given for the bankrupcy filing of the Tribune company were a loss of ad revenue, loss of circulation, the web, etc., the "perfect storm."

What's odd is that like our auto CEOs, it seems that no one at the top of America's corporate offices is willing to accept responsibility for their own mistakes. The reason for the failure of the Tribune company, and the LA Times in particular, is that Tribune newspapers under Zell Miller have have shortchanged actual news print, gutted editorial pages and filled the newspapers with advertising to the point that one can read the LA Times in 10-15 minutes, and most of what is on the LA Times can be found any other newspaper, but to get a more thorough reading of the news, you now must go online since you cannot get good news in newspapers for the most part.

Posted by: nantzin | December 9, 2008 3:00 AM | Report abuse

It gets worse. It was exactly the debt that did in the Trib - the papers, according to the News Hour, were profitable, just not "profitable enough".

So who wins? The former owners of the Trib. Zell gets out without any damage to his pile of gold.

Who loses? Well, how about all the Trib employees?

Disgusting, and it should be illegal.

Posted by: searp | December 9, 2008 6:46 AM | Report abuse

What Zell did should be illegal--but it never will be because he and his friends buy the legislators and courts that make the laws.
The LA Times itself reported that the paper continues to be profitable. It is interest payment on the debt that is causing the bankruptcy. In a just world, the alleged "owners" of the company--its employees--would be able to take over and operate the paper. They really don't need Zell for that.

Posted by: kstack | December 9, 2008 7:01 AM | Report abuse

The LA Times was crap way before any of this happened.

Posted by: steveroake | December 9, 2008 7:44 AM | Report abuse

Since early 2000, the web has been gaining momentum as the primary source for information beyond the headlines. Investigative journalism and objective reporting has been systematically disregarded by both print and TV executives. Great newspaper journalists have been devalued by their owners to cut costs. These people with the huge salaries have raped their companies and lost their audience because they devalue what the readers value; investigation, news and truth. They have becaome aggenda driven, cheap copy, informtainment bird cage liners.

Posted by: xargaw | December 9, 2008 9:32 AM | Report abuse

God knows there are newspaper-specific problems, craigslist, the web, ad revenues, and on and on. But what Zell did to this collection of companies, all of which are reported to be profitable, is part and parcel of the overarching problem with our economy; it was only about finance. Our "business leaders" are most adept at rearranging pieces of paper, creating and swapping debt, and gambling with other peoples money. Sure they make things, but the things are called "deals". There's little concern with product or service, adding value, or building for the future. It's all about manipulating numbers in a self-serving manner. It appears Zell had no interest in the operations or products of the Tribune, it was just another investment vehicle for him, like real estate or pork belly futures.

Posted by: jrw2 | December 9, 2008 10:13 AM | Report abuse

Typical financier. When a company is not worth the asking price and can't be sold at arms length to a third party, sell it to the employees at the inflated price via an ESOP.

Happens all the time. Best part is they usually think its in their benefit!

Posted by: toritto | December 9, 2008 11:23 AM | Report abuse

Pretty much all you need to know on Harold "Hammer-n-Sickle" Meyerson:

""Born in Los Angeles, Meyerson was educated in the Los Angeles public schools and at Columbia University. The son of long time leaders in California of the SOCIALIST Party of America, he was active in the 1970s in the Democratic SOCIALIST Organizing Committee. He currently shares his time between Washington, D.C. and California.""

Posted by: lt1z28 | December 9, 2008 12:32 PM | Report abuse

Mr. It1z28, I don't quite get what you are driving at. Why do you keep writing "socialist" in all upper-case letters?
Are you trying to extoll Mr. Myerson, or denigrate him? Could you explain what relevance Myerson's organising work in the seventies has to the situation today? I'm all ears, or eyes.

Posted by: mooser42001 | December 9, 2008 1:09 PM | Report abuse

The Trib had a $70 million loan payment due and evidently couldn't obtain credit, much like Republic Windows, from it's bank or banks. I wonder how much of this is just part and parcel of the ongoing financial crisis. Banks just calling in their loans or refusing to extent existing lines of credit any longer. That's what happened with Republic Windows.

Granted Zell played his same old buzzard's game by piling up huge debt to buy the corporation but my guess it was always intended to be short term until he sold off pieces like the Cubs to make the whole deal profitable. Like so many others who
leverage vast sums of other people's money he found himself without buyers who could do the same. And now neither can he. The game has changed.

Posted by: markg8 | December 9, 2008 1:29 PM | Report abuse

The look on Zell's face yesterday was the look of Bre'r Rabbit forced to jump into the briar patch. I am certain that Zell's business plan always called for Tribune to be pushed into bankruptcy - it's the only way his bizarre machinations over the last year make sense. (He has always used his crass nuttiness as a smokescreen - like a great chess player, he's always three moves ahead.)

The way the LBO was structured, he managed to control all of the preferred shares with the meagre $28 million or so he put in himself, and the billions of ESOP dollars he used to actually buy the company will be cut out of any reorganization, stuck way, way behind the vendors. Then he'll break up Tribune the way he intended to all along, except that he'll get to keep the money without having to share it, and the employees' share gets tossed into a bonfire for him to dance around. I'm a forgiving man, but I want to see Zell's head held aloft on a pike.

And for the Cubs to be moved to Oklahoma City, just to inflict maximum agony on the Tribune jerks who got the company in this situation to begin with.

Posted by: condiment | December 9, 2008 2:40 PM | Report abuse

Is this just one more Bush-era blunder we are going to ask Obama to fix for us?

That list is getting pretty long.

Posted by: jericho4119 | December 9, 2008 3:47 PM | Report abuse

how did we get to this point where the risk takers take no risk?

Posted by: vigor | December 9, 2008 4:50 PM | Report abuse

The real problem is the financial system that lets a shark like Zell "buy" a company with almost none of his own money. Most of the money involved actually belonged to other people--the employees, notably--who did not have any say in the matter. It's the old leveraged buyout, by the previous pirate king, Michael Milkin (who did not go to prison for nearly long enough to balance the harm he caused). The heart of it is that a person buys a company by borrowing against its assets, including its pension funds. A previously profitable company is turned into a money losing company if it can't pay off the financing. The shark cuts costs by laying off people and forcing the survivors to do more with less, and Wall Street applauds his "bold" actions.

If our politicians had any guts, they would value transparency and fairness over innovation and leverage in their re-regulation of the money system. You buy companies the old-fashioned way, with your own money. Pensions are obligations that represent people's lives, not mere financial transactions. They are not to be put into the asset pot for the gamblers to play their games with.

Posted by: justician | December 9, 2008 9:08 PM | Report abuse

I know its not right, but I wake up each day expecting to read about vigilante justice for these CEO's. They are severly damaing, and in some cases, destroying lives, for their own enrichment. I have said for years that CEO's of large companies have a unique responsibility to society, because they have a highly disproportionate influence on it.

If the CEO of Lehman and the CEO of Bear Stearns and Zell all wind up dead with a bullet in them, perhaps other CEO's will get the message. Jeff Skilling will walk free one day. If that walk lasts 20 minutes, it'll be 19 minutes too long.

Just because what Zell has done isn't criminal according to US law, doesn't mean he isn't a criminal deserving of harsh punishment.

Posted by: zcezcest1 | December 10, 2008 1:15 AM | Report abuse

The titles "CEO" and "Gangster" are becoming one and the same.

zcezcest1 may have it right.

Is it time to free Dr. Ted K? He wrote a manifesto about these criminals years ago. We put him in jail for trying to stop them, then we elected a series of them to the Presidency.

We could make Dr. Ted head of enforcement for the Security and Exchange Commission.

Posted by: bertholland | December 10, 2008 7:38 AM | Report abuse

Wait a minute ... a REAL ESTATE guy screwed this deal up so badly?

You've got to be kidding.

Posted by: TheProFromDover | December 10, 2008 12:25 PM | Report abuse

"If our politicians had any guts, they would value transparency and fairness over innovation and leverage in their re-regulation of the money system. You buy companies the old-fashioned way, with your own money. Pensions are obligations that represent people's lives, not mere financial transactions. They are not to be put into the asset pot for the gamblers to play their games with. Posted by: justician"

If our politicians had any sense they would make the ATTEMPT to buy a company under leverage a crime punishable by a minimum of twenty years in jail. The essentials of the crime would be that a rogue like Campeau or Zell even made the initial offer.

Leveraging a company, whether it is the Tribune, or Federated Department Stores, is outright grand theft. Usually of billions of dollars of employee equity. Wall Street loves those transactions because they get their commissions regardless, (and usually it comes out of the pockets of small investors, or employees who have no wall street investments whatever.) and when the raider turns out to be an idiot like Robert Champeau, they get a second commission selling the stock that the idiot ends up surrendering all over again.

By the way, isn't Milliken teaching business ethics somewhere in Chicago?

Posted by: ceflynline | December 10, 2008 9:24 PM | Report abuse

It's incredible how the obscenely selfish behavior and attitudes of CEO's around this country are being exposed, not to mention governors. This extreme greed and collapse of anything resembling the Common Good is the result of an attitude in Washington of "anything goes." Thanks, Bush Administration, for destroying long-standing values of the country. I pray that Obama can reverse the damage.

I also think our children have imbibed this kind of jaded self-interest instead of the values of Public Service. We deserve the consequences of attitudes of greed we've fostered as a culture.

Posted by: cturtle1 | December 11, 2008 9:44 AM | Report abuse

I just keep hearing this over and over again in my head when I read things like this:

"....Rome fell from within."

Posted by: kban495 | December 11, 2008 12:06 PM | Report abuse

Mr. Zell is a billionaire wheeler-dealer who only wanted to be able to tell the grandkids that he owned a newspaper. Neither money nor journalism nor morlity had anything to do with it.

Posted by: dmauro49 | December 11, 2008 12:37 PM | Report abuse

None of this matters.
Sorry, but if you understood free market economics, the only question that has any validity is "did Zell make money doing it?"
If he did, he'll do it again.
If he didn't, he'll stop.
The free market view is whatever makes me money is good and whatever looses is bad. If doesn't make estimates of collateral losses among other players or the social impact of these "decisions", only the end point matters, profit and loss.
That's good approximation of what's wrong with this county.

Posted by: dijetlo | December 11, 2008 12:57 PM | Report abuse

Well advised: If the Trib's (and LA Times) personnel do nothing but sit on their butts and sob out their eyes, then they deserve what's coming to them.

And why ever are Ameircan journalists/newspapermen so godawfully disorganized they do not have any watch/ombudsman/whatever even just to sound alarm when such things as this Zell begin to happen? Is there no sense of camaraderie among media people? Has competition and the so-called "spirit" of free enterprise (actually, pluner/piracy) benumbed them all?

How can media people now go on pontificating or wise-men-nodding about the "melt-down" and the "bail-outs" and the like if similar worse things happened within their field? (You see the implications? They ripple all across the board.)

As a poet warned once: "Ask not for whom the bell tolls... it tolls for thee."

Posted by: olegnaj | December 11, 2008 8:49 PM | Report abuse

Bank of America and Mr. Higgins missing $millions, It can happen to you, my fellow Americans

More info:

Posted by: srmaxhiggins | December 13, 2008 12:17 PM | Report abuse

What happens when the newspapers disapear?Is this a concerted effort or just bad luck?

Posted by: truthynesslover | December 15, 2008 3:13 AM | Report abuse

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