July 17, 2007
By my reckoning, Sam Zell has about a month to change his mind about taking Tribune (NYSE: TRB ) private. Or perhaps the Chicago real estate tycoon can live with a seemingly unstoppable slide in the company's revenue and operating cash flow.
According to a memo written by David Hiller, publisher of the Los Angeles Times, and obtained by our friends at Bloomberg, the Times -- Tribune's largest property -- saw its advertising revenue fall yet again last month and its cash flow plummet by 27%. And according to Hiller, the results experienced by the Times coincided with those at the company's other properties. But the declines at Tribune apparently were more serious than those of the rest of the industry.
After a protracted drama in which several billionaires from areas outside of journalism cast bids for Tribune -- and its largest shareholder, the Chandler family, called for change -- Zell emerged victorious earlier this year. His $8.2 billion buyout proposal was based on the creation of a tax-advantaged employee stock ownership plan. The company's shareholders are scheduled to vote on the plan on Aug. 21.
But the privatization would occur amid a worsening plight for the nation's daily newspapers. This past May, advertising revenue from continuing operations at New York Times (NYSE: NYT ) dropped by 8.5%. And declines in publishing revenue are occurring -- seemingly with no end in sight -- at such other major publishers as McClatchy (NYSE: MNI ) , Gannett (NYSE: GCI ) , and Media General (NYSE: MEG ) .
On that basis alone, I'm admittedly at a loss to comprehend Zell's thinking. Sure, he's been successful in assembling a sizable fortune from astute investing in real estate, but I wonder how that success translates into an assumption that he can resurrect sliding newspaper fortunes sufficiently to maintain, or even increase, the cash flow levels that are so vital to high-debt privatized companies.
So it remains to be seen in the coming month whether Zell will think twice about becoming the sort of "press lord" that Warren Buffett talked about in a cautionary way in Berkshire Hathaway's (NYSE: BRK-A ) latest annual report. In the meantime, it becomes more apparent by the day that publishing is anything but an ideal place for Fools in search of solid investment returns to dabble.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments or questions. The Motley Fool has a very readable disclosure policy.