Prepare to be Mushroomed
What a Corporate Buyout Can Mean to You “Watching Celebrities Self-Destruct” was an account of the gratuitous racist-sexist slur of the Rutgers championship women’s basketball team by morning “shock-jock” Don Imus. Seven out
April 2007 By Denny Hatch
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In the News
How Will Tribune Pay Its Debts? Highly Leveraged Deal Leaves Little Room for Error, Despite Tax BreaksTribune Co. and Sam Zell just took out a risky loan on the future of the newspaper industry. Now, they have to start paying it back. The big question hanging over Tribune’s $8.2 billion buyout deal unveiled Monday is this: How do they plan to do that, given that the newspaper industry faces uncertain prospects? Financed almost entirely by debt, the buyout will leave the newspaper and TV concern staggering under more than $12 billion in debt, when existing borrowings are included. That is about 10 times Tribune’s annual cash flow, a ratio several times higher than typically carried by most media businesses.
—Sarah Ellison, The Wall Street Journal, April 4, 2007
According to the Jan. 25, 2007 Newstrack, the media industry slashed 17,809 jobs in 2006, an 88% increase over the 9,452 jobs lost the prior year.
Last year, we watched The Philadelphia Inquirer and Daily News fall into the hands of a local consortium of investors that has neither newspaper experience nor deep pockets. The carnage has not been pretty.
I am reminded of a long, liquid lunch that I had many years ago with my first book publisher, a taciturn, rotund Vermonter named Paul S. Eriksson. He was the proprietor of a tiny business on West 58th Street with just two employees—himself and his wife, Peggy.
At one point I asked, “Paul, why don’t you get bought?”
“Huh? What do you mean?”
“RCA just bought Random House and CBS has acquired Holt. Why don’t you find a nice rich investor to buy you, pump some financial juice into your operation, so that you can publish more books and become a real player?”
Paul thought a moment. “Nah,” he said. “You know what happens to the CEO of a small company that gets bought? They mushroom the guy.”
“What do you mean ‘mushroom the guy?’”
“What do you think it means?”
“I don’t know. Something like this?” I drew a mushroom shape in the air with my two forefingers.
“No,” he said. “When you mushroom a guy, you keep him in the dark for a long time, you feed him a lot shit and then you can him.”
The Newspaper Business
I am a dinosaur. For this e-zine, over pre-dawn coffee, I read three newspapers a day in hard copy that are delivered to me daily—The New York Times, The Wall Street Journal and The Philadelphia Inquirer. I make notes of the stories I want to download and then hit the computer and capture them.
The cost of these three papers in hard copy is in excess of $800 a year.
I then hit 15 other Web sites around the country and in the United Kingdom, vacuuming up, filing and cross-indexing stories for possible future use. With the exception of The Financial Times and the extra online fee charged by The Wall Street Journal, these vast treasure troves of information are free—paid for by advertisers.
Takeaway Points to Consider:
* If you are looking to buy a company and discover that it is poorly run and management does not know who the customers are, walk away from the deal.* How diligent is your due diligence? Are you willing to overlook serious flaws in your zeal for acquisition?
* The ideal acquirer of companies is Warren Buffett, who does his due diligence diligently, buys healthy companies that are throwing off profits and leaves them alone. As the second richest man in the world, Buffett has nothing to prove beyond his penchant for excellence.
* I get the sense that Brian Tierney and Sam Zell feel that they have something to prove and borrowed vast sums to buy high-profile media companies, even though they have no previous experience in the industry. Zell’s situation seems especially precarious with subsidiaries in revolt and debt estimated to be 10 times annual cash flow.
* In any leveraged buyout, money is borrowed, resulting in an inexorable schedule of interest payments, which means most—if not all—earnings are earmarked for debt service.
* This is a recipe for a lot of people being mushroomed.
* A friend of mine works for Newsday, and he tells me that job security is nil and morale is in the tank—hardly an atmosphere for creating excellence. For him, going to work is not a lot of fun.
* A lesson I learned from freelancing: “Always sell when you are busiest.” That is, even when you are crazed with work, it is imperative to set aside time to look for new clients. Otherwise, if assignments are completed and no jobs are in the hopper, you are out of work.
* In the corporate world, it is imperative to have your resume absolutely up-to-date and to regularly spend time on Monster.com (or be registered with one or more headhunters), so that if something good is out there, you will know about it and pounce. Otherwise, if you are suddenly laid off (fired), finding for a new job can take months.
* Confine your resume and job searches to your home computer. According to Proofpoint Inc./Forrester Research, in a 2005 survey of 140 North American businesses nationwide, roughly 33% conduct regular audits of employee e-mail content.
* If your company is bought, beware of the two guys who show up in your offices and say, “We’re from corporate headquarters and we’re here to help.”
Web Sites Related to Today's Edition:
The Philadelphia Inquirerhttp://www.philly.com/inquirer/
The Chicago Tribune
http://www.chicagotribune.com/
The Los Angeles Times
http://www.latimes.com/
Newsday
http://www.newsday.com/
Companies Mentioned:
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