August 9, 2022

The Media Equation: Ugly Details in Selling Newspapers

James O’Shea, the former editor in chief of The Los Angeles Times, found a classic of the genre in the course of reporting out “The Deal From Hell: How Moguls and Wall Street Plundered Great American Newspapers,” his deep dive into the two deals that tipped over the companies that owned, among many other newspapers, The Los Angeles Times and The Chicago Tribune.

Here’s the capsule version: in 2000, The Tribune Company, owner of the Tribune and many other papers, bought the Times-Mirror Company, owner of The Los Angeles Times, for a then-record $8.3 billion. The merger never yielded much in the way of synergy, and the combined company put itself in play in 2007, when there were few buyers left.

Enter Sam Zell, a real estate tycoon with a fondness for distressed assets, who took over the business with the help of an Employee Stock Purchase Plan that saddled Tribune with $13 billion in debt. The company is now mired in a two-year, hugely expensive bankruptcy.

That’s all known. What Mr. O’Shea focused on was how the bankers — who he said should have known the deal would render the company insolvent — seemed to be too busy counting their fees to care. Here’s a note he found buried deep in court records from Jieun Choi, an analyst at JPMorgan Chase Company, that demonstrated a breathtaking level of cynicism and self-dealing:

“There is wide speculation that [Tribune] might have so much debt that all of its assets aren’t gonna cover the debt in case of (knock-knock) you know what,” she wrote to a colleague, in a not very veiled reference to bankruptcy. “Well that’s what we are saying, too. But we’re doing this ‘cause it’s enough to cover our bank debt. So, lesson learned from this deal: our (here I mean JPM’s) business strategy for TRB but probably not only limited to TRB is ‘hit and run.’ ”

She then went on to explain just how far a bank will go to “suck $$$ out of the (dying or dead?) client’s pocket” in terms that are too graphic to be repeated here or most anywhere else.

The court-appointed bankruptcy examiner, Kenneth Klee, was skeptical of her ability to make such a judgment, saying “Choi’s e-mail reflects a misunderstanding by a junior analyst who failed to understand the nature and purpose of the analysis she was asked to perform.” Mr. Klee sought to interview her, but she declined and has since returned to her native Korea. Mr. O’Shea said her e-mail reflected an overall mentality that was pervasive among the banks.

JPMorgan ran the deal, but other banks, including Citibank and Bank of America took part. There were two separate rounds of funding to raise the approximately $12 billion that Mr. Zell borrowed to take the Tribune Company private. The banks received an eye-popping $161 million in fees for just the first round — a number sufficient to run The Los Angeles Times newsroom for a year, as Mr. O’Shea points out — and a total of $283 million in fees for both rounds.

He also reports that Jamie Dimon, the head of JPMorgan expressed some doubts about the fundamentals of the deal based on his firm’s analysis, but ultimately the bank decided to keep Mr. Zell’s business. JP Morgan was a substantial lender in the deal as well, lending hundreds of millions of dollars, and will share in the pain of the bankruptcy.

JPMorgan’s lawyers declined to comment, but the bank has said in the past that both it and Mr. Dimon were obligated by contracts signed during phase one of the lending, and that they did so based on a solvency opinion that later came into dispute.

Mr. O’Shea said in a phone call that he “was stunned by how this small group of powerful bankers, all of whom seemed to know each other, lined up to get Mr. Zell’s business. Like him, they didn’t know much about the news business, but they were basically doing billion dollar loans with a wink and nod.”


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