A decade earlier, Zell's idea could have worked great. Tax savings would have been huge, and the place was printing money.
If Zell hadn't come along, Tribune would have filed for bankruptcy in 2018 instead of 2008. And it would have taken that long only because it had profitable TV stations to lean on.
If that kind of leveraged buyout had occurred in 1997, instead of 2007, the Trib would have been filing for bankruptcy when the dot-com bubble popped in 2000, when the 1990s party ended (as opposed to the one that ended in 2008).
There are no free lunches. We have now had decades of the same cycles. You'd think people would catch on eventually ... The debt markets have been distorted to allow our government to keep spending way beyond its means. Those monetary / credit injection distortions necessary to live that fantasy, fuel malinvestment privately too, because the cost of money is price fixed to be artificially cheap to enable it all. It leads to things that look like insanity in hindsight; it blows bubbles -- leading to speculative frenzies, companies with no earnings and specious business plans being able to raise billions of dollars at higher and higher valuations. ...
and multi-billion dollar leveraged buyouts for struggling companies like the Trib at the time.
Eventually something blows up for any number of reasons, and it threatens economic misery (the payback). And they behave the same way each time. ... by stepping in with even an even bigger price-fixing scheme to try to reinflate the bubble, ensuring the overall payback the next time around is going to be even more economically severe, because they are fueling trillions of dollars of credit to prop up a lot of bad debt from the past, and that leads to even more epic malinvestment that makes the last bubble that popped look quaint.
The only thing that made Zell's $8 billion leveraged buyout possible was the giant distortion that created the financial crisis in 2008. In an unmanipulated debt market it would never have happened (there is no moral hazard) and the Trib would have had to scale back dramtically and possibly go bankrupt on its own.
But after the dot-com bubble popped, the response was to fuel more credit market insantity, and it culiminated with the financial crisis in 2008. Zell was really late to the party on the Trib deal. He closed in 2007. The bubble popped in 2008, and the Trib had to file for bankruptcy because that mashive amount of debt that made sense in the artificial environment leading up to 2008 was unsustainable when the party ended. It's the same reason Lehman Brothers was skating along one day living a fantasy, and was gone the next.
In the Trib's case. ... At the end of the day, your business is as good as its ability to sell things and earn money. Leveraging the Trib up to a batship crazy level didn't change that reality.
FWIW. ... Zell was luckier (and smarter) than not. He (inadvertently) cashed out on a giant overvalued real estate portfolio (he sold to Blackstone) around the same time as the Trib buyout and pocketed a lot of money. He sold out near the peak of a bubble. It's part of what emboldened him to think he could pull off that Trib deal. But he wasn't so emboldened (or reckless) that he put up more than a few hundred million dollars of his own money, and the crushing debt he piled onto the Trib couldn't have happened without the employees (who were so desperate to believe that the Trib wasn't a dying business, that there was some magical financial engineering that could change reality) agreeing to allow the company to borrow against their pension plan. They got equity in the deal. ... equity that was worthless in the bankruptcy.
