The failure of even a grand strategy became evident on Monday when the Tribune Co. sought Chapter 11 bankruptcy protection. The employees of the company need to accept that layoffs were going to occur. The business is such that the only way to quickly shed costs is to lay staff off, as discussed earlier in this series.
What is disturbing here is that the strategic game plan is flawed. The strategy did not take into account a prolonged recession or downturn in the economy or the newspaper business. Zell's strategy seems doomed in any case as the shareholders are not being protected going forward. They will slowly be eliminated, while the claims of the liability holders, which includes Zell, will be the only stakeholders who gain value.
If there was a game plan here, a strategic game plan for how the Tribune Co. was going to be able to exit the highly leveraged state that Zell put it in, it seems to have been that it would sell its profitable business entities in favor of retaining those parts of the empire that no one wants. This was a questionable model. As the company sheds those parts that are performing well, it stands to reason that it would be left with the parts that are not performing well. Or am I missing something here?
Cash flow would suffer. The pressure on the company from creditors would increase... On the other hand, I think Zell is a smart guy who can wring a buck from a quarter. He could get top dollar, as he did in Long Island with the sale of Newsday. News reports indicated that until the crash and burn of the credit market, he might have expected to receive double the value for the Chicago Cubs from estimates a year ago.
But this strategy depended on the cyclical nature of the news business to reverse soon. Eventually newspapers may return to financial health. Although people I've discussed this with seem to believe that could occur between 2012 and 2016. And based on current trends, it would be based on a model of electronic transmission of news, not the paper sale of the product.
In other words, the market for news is restructuring. Can a highly leveraged company, such as the Tribune Co., be in a financial position to take advantage of such changes? I'll answer that one-- NO!
For this grand strategy to succeed, forecasts had to be wrong. For it to succeed, the Tribune Co. had to be able to obtain even more capital by 2016. The Tribune couldn't continue to sell assets at distressed prices, prices that were low even adjusted for Zell's cunning, for four to eight years.
Plus the strategy seemed at odds with the basic structure of the business. This is an employee owned company, in name. What employees would be left when everything was sold?
The ground game, the tactical game for turning the company around involved downsizing the staff and redesigning the product. For this purpose the point men seem to be Randy Michaels and Lee Abrams.
Let's not even begin to discuss how failed the ground game appears. Yes the staff is smaller. But is this a product that people perceive the same way as a year ago? Michaels and Abrams are failures. They need to be jettisoned. Remember what Zell said about managers who don't perform?
So, a year on, we have a diminished company, a diminished product and the future is closing doors that would have been open if this company wasn't so highly leveraged. We have a management team that doesn't know the basics of the business leading it to diminish its key advantage, its image.
And, finally, we've learned that the CEO is not the stakeholder we thought, he is a creditor. He has not acted in the best interests of the shareholders but rather of the creditors. This is a fiduciary failure and the basis for the lawsuit, in California, by current and former employees of the Los Angeles Times.