Sam Zell tells Maria Bartiromo that the Tribune is in great shape now that it doesn't have to worry about making interest payments.
(Translation: Yes, it really is hard to believe that we persuaded those banks to lend us $13 billion. A sucker really is born every minute.)
Transcript courtesy CNBC:
MARIA BARTIROMO: LET ME KICK IT OFF WITH TRIBUNE. OF COURSE IT HAS BEEN
A ROUGH ROAD HERE. THE COMPANY HAS ASSETS OF $7.6 BILLION, BUT DEBT OF
12.9 BILLI0N. SAM, WHAT WENT WRONG?
SAM ZELL: I THINK THAT, IN THE MOST SIMPLISTIC TERMS, WE LOOKED AT THE
TRIBUNE BEFORE WE MADE OUR OFFER. IT HAD BASICALLY ERODED AT ABOUT A 3
PERCENT LEVEL IN THE PREVIOUS FIVE YEARS. WE UNDERWROTE IT AT A 6
PERCENT AND WE ENDED UP WITH 20. AND IN AN OPERATING LEVERAGE BUSINESS
LIKE THIS, 20 PERCENT REDUCTION IN GROSS REVENUE IS A DISASTER IN A CASH
FLOW LINE. AND IN THE END MY RESPONSIBILITY IS TO PRESERVE THE VALUE OF
THE COMPANY AND TO MAKE SURE THAT IT WILL GO ON INTO THE FUTURE. AND OUR
ACTION WAS PRE-EMPTIVE IN NATURE SO AS TO PRESERVE THE ASSETS OF THE
COMPANY AND CREATE THE OPPORTUNITY FOR A REORGANIZATION.
BARTIROMO:SO,TELL ME ABOUT THAT REORGANIZATION. DO YOU FEEL YOU HAVE
ENOUGH CASH RIGHT NOW TO OPERATE IN BANKRUPTCY?
ZELL: YES. THE COMPANY HAS A SIGNIFICANT POSITIVE CASH FLOW, AS LONG AS
IT'S NOT, OBVIOUSLY MAKING ITS DEBT PAYMENTS.
BARTIROMO: DO YOU THINK THERE WILL BE MORE JOB CUTS AHEAD OR HOW
SPECIFICALLY ARE YOU PLANNING TO RESIZE THE BUSINESS TO FACE THE
ECONOMIC REALITIES?
ZELL: WELL I THINK THAT WE HAD BEEN RESIZING THE BUSINESS ALL YEAR LONG.
AND I IMAGINE THAT GOING FORWARD WE NOW HAVE THE TIME TO REALLY FOCUS ON
WHAT I CALL BROADER ISSUES AND ISSUES OF CONSOLIDATION, TAKING ADVANTAGE
OF THE POSITION WE'RE IN, IN VARIOUS MARKETS WHERE IN FACT WE CAN CREATE
AN OPPORTUNIT ONE PLUS ONE EQUAL THREE.
BARTIROMO: SO HOW MUCH OF A ISSUE WAS THE BACKDROP, THE TOUGH
ENVIRONMENT WITH, REALLY, A FUNDAMENTAL SHIFT IN THE BUSINESS VERSUS
ISSUES AT TRIBUNE?
ZELL: I THINK THAT HAD WE HAD A 2007 OR 2006 YEAR, WE WOULD NOT HAVE HAD
ANY ISSUES AT "THE TRIBUNE." BUT UNDER THE CIRCUMSTANCES IT WAS LIKE A
GIANT TSUNAMI OR PERFECT STORM. AND WHEN YOU LOSE THAT KIND OF REVENUE,
THERE'S NO WAY TO OVERCOME IT.
BARTIROMO: SAM, WHEN WE TALKED A YEAR AGO WHEN YOU FIRST WERE MAKING THE
ACQUISITION, WE TALKED ABOUT THAT EMPLOYEE STOCK OWNERSHIP PLAN, ESOP,
CREATED IN THE BUYOUT, THE PRIVATE COMPLETION, WITH THE BANKRUPTCY, A
LOT OF PEOPLE ARE SAYING ESOP IS WORTHLESS. IS THAT TRUE?
ZELL: OH, I DON'T THINK SO AT ALL. I THINK THE ESOP STRUCTURE WILL
DRAMATICALLY BENEFIT THE RECOVERY AND THE REORGANIZATION OF "THE
TRIBUNE."
BARTIROMO: SAM, LET ME ASK YOU ABOUT THE ISSUES OF THE DAY AND OBVIOUSLY
BIG NEWS OUT OF ILLINOIS, THE GOVERNOR CHARGED WITH TRYING TO SELL
PRESIDENT-ELECT BARACK OBAMA'S SEAT AMAZINGLY, ACCORDING TO PROSECUTIRS.
REPORTS THAT THE GOVERNMENT AND THE CHIEF OF STAFF THERE IN THE
GOVERNOR'S OFFICE SOUGHT TO FORCE THE FIRING OF MEMBERS OF "THE "CHICAGO
TRIBUNE," TRUE?
ZELL: I'M NOT PERSONALLY FAMILIAR WITH ANY OF THAT. AND CONSIDERING THE
FACT, MARIA, THAT THIS IS AN ONGOING CRIMINAL INVESTIGATION, I WOULD
FEEL RETICENT TO COMMENT ACCORDINGLY.
BARTIROMO: HAVE YOU BEEN CONTACTED BY THE FBI, SAM?
ZELL: YES.
BARTIROMO: AND THEY'RE LOOKING TO SEE IF THERE WAS ANY PRESSURE CLEARLY
ON THE "TRIBUNE" STEAFF?
ZELL: I THINK THEY'RE ASKING QUESTIONS, AS FAR AS MY KNOWLEDGE IS
CONCERNED. THE "TRIBUNE" DID NOT RESPOND AT ALL.
BARTIROMO: AND AS FAR AS YOU'RE CONCERNED, WAS THERE PRESSURE ON THE
STAFFERS TO CHANGE COVERAGE?
ZELL: I CERTAINLY CAN'T SPEAK TO THAT.
BARTIROMO: ALL RIGHT. SAM, LET ME ASK YOU A LITTLE BIT MORE ABOUT
BUSINESS HERE. YOU HAVE A GREAT VANTAGE POINT IN TERMS OF CERTAINLY IN
THE "TRIBUNE" AS WELL AS IN REAL ESTATE. CAN YOU CHARACTERIZE WHERE WE
VERY IN THE REAL ESTATE CYCLE AS WELL AS THE ECONOMIC SLOWDOWN? WHAT ARE
YOU SEEING?
ZELL: WELL, FIRST OF ALL, I THINK THE BIGGEST PROBLEM EVERYBODY HAS
RIGHT NOW IS THE LACK OF VISIBILITY. IT'S VERY HARD TO PREDICT HOW THE
ECONOMY WILL RESPOND NEXT YEAR. PERSONALLY I BELIEVE THAT THE HOUSING
CRISIS HAS ALREADY PEAKED, AND I WOULD EXPECT THAT COME THE MIDDLE OF
2009 WE WILL HAVE SEEN A SIGNIFICANT ABSORPTION OF THE UNSOLD HOUSES OR
FORECLOSED HOUSES. AND I THINK IT'S REALLY A QUESTION OF SUPPLY AND
DEMAND. FOR THE LAST TEN YEARS WE PRODUCED ABOUT A MILLION, 600,000 OF
HOUSES A YEAR. WE'RE NOW PRODUCING AT A RATE OF ABOUT 4 TO 500,000.
BASED ON MY EXPERIENCE, WHEN SUPPLY STOPS, SUPPLY GETS ABSORBED, AND WE
RETURN SLOWLY TO A MORE NORMAL MARKET.
BARTIROMO: LAST TIME WE SPOKE YOU WERE PRETTY CONFIDENT WE HAVEN'T SEEN
THAT ALL THAT MUCH OF AN IMPACT TO THE COMMERCIAL SIDE OF REAL ESTATE.
ARE YOU CHANGING YOUR TUNE, GIVEN THE ECONOMIC FUNDAMENTALS SEEMS TO BE
WORSENING?
ZELL: I AM NOT -- I MEAN WHEN YOU LOOK AT COMMERCIAL REAL ESTATE, JUST
LIKE THE RESIDENTIAL REAL ESTATE, EVERYTHING HAS TO COME DOWN TO SUPPLY
AND DEMAND. AND WE HAVE NOT BUILT OR COMMITTED TO ANYTHING NEW IN THE
UNITED STATES SINCE JULY OF '07. SO THAT WILL, IN MY OPINION,
DRAMATICALLY CUSHION THE IMPACT OF THIS RECESSION ON COMMERCIAL REAL
ESTATE. ALMOST EVERY OTHER TIME WE'VE HAD A RECESSION, WE'VE ABOUT GONE
INTO THAT RECESSION WITH SIGNIFICANT OVERSUPPLY IN COMMERCIAL REAL
ESTATE. THAT'S NOT THE CASE TODAY, AND SO ALTHOUGH WE ARE SEEING
REDUCTIONS IN VALUES, PRIMARILY AS A RESULT OF NO FINANCING AVAILABLE,
AT LEAST SO FAR AND CERTAINLY IN WHAT I WOULD CALL THE HIGH QUALITY REAL
ESTATE, I DON'T THINK THAT A THERE'S BEEN ANY DIMINUTION IN CASH FLOW.
ALTHOUGH OBVIOUSLY VALUE IS IN THE EYES OF THE BEHOLDER.
BARTIROMO: SAM, ZEROING IN ON THE CHICAGO CUBS AND THE WRIGLEY FIELD
BALLPARK SALE, THEY'RE NOT INCLUDED THE BANKRUPTCY THAT WE'RE TALKING
ABOUT TODAY IN TERMS OF TRIBUNE. AT THIS POINT,IS THE TEAM SALE AND
TIMETABLE FOR THAT SALE STILL ON TRACK, ESSENTIALLY UNCHANGED OR HAS
THAT CHANGED?
ZELL: NO. I HAVE NO REASON TO ANTICIPATE THAT THE SALE SCHEDULE WILL BE
ANY DIFFERENT THAN WHAT WE'VE PREVIOUSLY ANNOUNCED. WE DID GET THREE
FINAL BIDS. I BELIEVE IT WAS LAST WEEK. THERE WAS SOME SPECULATION IN
THE NEWSPAPERS TODAY THAT THE FILING HAD SOMETHING TO DO WITH THE FACT
THAT WE GOT INADEQUATE BIDS. NOTHING COULD BE FURTHER FROM THE TRUTH.
BARTIROMO: YOU KNOW, SOME ISSUES WERE RAISED THAT FEDERAL
PROSECUTORS,YOU KNOW, SAY THAT THE ILLINOIS SITUATION ALSO IMPACTS THIS,
THAT THE GOVERNOR'S OFFICE THREATENED TO WITHHOLD STATE ASSISTANCE TO
TRIBUNE IN CONNECTION WITH THE SALE OF WRIGLEY PARK. IS THAT TRUE?
ZELL: WELL, I THINK THAT THE ISSUE THAT WE WERE ADDRESSING WAS WHETHER
OR NOT A FINANCING STRUCTURE WHICH SEPARATED THE BALLPARK FROM THE TEAM
MIGHT BE BENEFICIAL TO EVERYBODY INVOLVED, PARTICULARLY GUARANTEEING THE
VIABILITY OF WRIGLEY FIELD FOR THE NEXT 30 YEARS. THAT DID NOT REQUIRE
QUOTE/UNQUOTE ASSISTANCE, BUT IT WAS A QUESTION OF WHETHER OR NOT IT
MADE SENSE OR NOT. AND WE NEVER REALLY GOT TO FIND OUT SINCE WE NEVER
TOOK IT VERY FAR TO WHETHER OR NOT THAT WAS A VIABLE ALTERNATIVE.
BARTIROMO: LET ME ASK YOU MORE ABOUT WRIGLEY FIELD AND THE CUBS STORY
HERE BECAUSE,YOU KNOW, EVEN THOUGH IT'S NOT TECHNICALLY PART OF THE
BANKRUPTCY, SAM, A CUB SALE WOULD STILL HAVE TO BE APPROVED BY THE
BANKRUPTCY JUDGE. SO WHAT IS THE IMPACT OF THE "TRIBUNE" BANKRUPTCY ON
THOSE TWO?
ZELL: I DO NOT BELIEVE THAT THE CUBS TRANSACTION WILL BE IMPEDED BY THE
BANKRUPTCY.
BARTIROMO: IN ANY WAY.
ZELL: I DON'T THINK SO.
BARTIROMO: WE WERE JUST TALKING A FEW MINUTES AGO ABOUT WHAT HAS
OCCURRED IN FINANCIAL SERVICES, SAM AND YOU KNOW, YOU HAVE BEEN REALLY
AN ACCURATE PREDICTOR OF WHAT HAS GONE ON. LET ME ASK YOU YOUR THOUGHTS
ON HOW IT HAS BEEN POSSIBLE THAT WE FIND OURSELVES IN THIS POSITION
WHERE THE FINANCIAL SERVICE COMPANIES ARE TEETERING AND WE'RE IN THIS
SIGNIFICANT CREDIT CRUNCH. HOW HAS IT IMPACTED YOUR ABILITY TO RAISE
CAPITAL?
ZELL: I THINK IT'S IMPACTED EVERYBODY'S ABILITY TO RAISE CAPITAL, AND
SINCE OUR SYSTEM IS PREDICATED ON BOTH DEBT AND EQUITY, ONE OF THOSE
ELEMENTS IS CURRENTLY MISSING, WHICH IS OBVIOUSLY IMPAIRING EVERYBODY'S
ABILITY TO GO FORWARD IN TRANSACTIONS. SO I THINK THAT OVERALL THE
BUSINESS COMMUNITY IS SUFFERING FROM THE FACT THAT CREDIT IS NOT
REASONABLY AVAILABLE. ON THE OTHER HAND, I THINK IT IS VERY PREMATURE TO
EITHER EXPECT OR ASSUME THAT THE PROGRAMS IMPLEMENTED BY SECRETARY
PAULSON WOULD HAVE ALREADY HAD ANY KIND OF MAJOR IMPACT. I THINK THAT IT
WILL TAKE TIME FOR THE T.A.R.P. FUNDING OF THE BANKS TO TRANSLATE INTO
LENDING, BUT I THINK IT WILL HAPPEN, AND I THINK IT WILL HAPPEN AFTER
THE FIRST OF THE YEAR.
BARTIROMO: FINAL QUESTION AS WE WRAP UP ON THE "TRIBUNE" BANKRUPTCY
SITUATION. WHEN YOU MADE THE DEAL AND TOOK THE COMPANY PRIVATE A YEAR
AGO, YOU DID HAVE SOME SKEPTICS OUT THERE SAYING THIS WAS THE DEAL FROM
HELL, I THINK IT WAS ONE HEADLINE.
ZELL: NO. THAT WAS MY QUOTE. THAT WAS MY QUOTE.
BARTIROMO: EVEN WHEN YOU WERE --
ZELL: THAT WAS AFTER I WAS IN THE DEAL FOR THREE MONTHS.
BARTIROMO: AND THAT SOON INTO IT. DO YOU REGRET MAKING THAT DEAL?
ZELL: YOU KNOW, MY HEAD ONLY FUNCTIONS LOOKING FORWARD. I'M NOT REALLY
VERY GOOD AT LOOKING BEHIND. AND SO CONSEQUENTLY I DON'T TEND TO
REMINISCE OR, YOU KNOW, SELF-MUTILATE MYSELF AS A RESULT OF PAST
DECISIONS. I THINK I MADE THE DECISION WHEN I MADE IT. I THOUGHT IT WAS
AN APPROPRIATE INVESTMENT AT THE TIME. OBVIOUSLY CIRCUMSTANCES HAVE
PROVEN THE OPPOSITE, BUT THIS, TOO, SHALL PASS.
BARTIROMO: WHEN YOU DO YOU EXPECT IT TO PASS? WHEN DO YOU EXPECT THE
EMERGE FROM BANKRUPTCY AT THE "TRIBUNE?"
ZELL: I THINK IT'S A LITTLE EARLY TO ANSWER THAT QUESTION, MARIA. AS YOU
KNOW, WE JUST GOT ORDERS TODAY. HOPEFULLY WE'LL FIND A SOLUTION IN THE
NOT TOO DISTANT FUTURE.
BARTIROMO: SAM VERY GOOD TO HAVE YOU ON THE PROGRAM. WE SO APPRECIATE
YOUR CANDOR.
