The Tribune Company Is More About Private Equity Than Newspapers

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The Tribune Company may go into Chapter 11 this week. The newspaper industry has several companies headed that way. Journal Register and Gatehouse are at the top of the list.

Tribune’s failure says more about the private equity and LBO industry than it does about newspapers, although there is no denying that the print business is at the end of its life and most properites in the industry will end up radically changing the way that they conduct themselves and some will simply disappear.

Tribune borrowed $12 billion to take itself private. It was able to do that even when it was clear that newspapers were no longer a high margin business. It was a sign that there was still some gas in the tank of private equity and commercial banks which funded these sorts of things.

In a robust economy banks would not let a business as big as Tribune fail. The write-offs would be too large. Available capital could allow the firm to sell properties or take other measures to cover debt service. In a vicious downturn, the banks won’t risk one more penny and private capital will not put in additional equity capital. These firms already have investors who are up in arms about money lost on LBOs which were done at ridiculously high prices.

The Tribune is just a canary in the coal mine. The next big company which went through the process of becoming a private enterprise may fail as well, whether it is a hospital chain, a manufacturing company, or a retailer. There is not cash to save them.

Douglas A. McIntyre