Enron Sues Knight Ridder, Tribune

By: Brad Foss, AP Business Writer (AP) Enron Corp. is suing Tribune Co. and Knight Ridder for more than $31 million, alleging that the media giants defaulted on contracts related to the price of newsprint.

Both companies terminated multiyear agreements early, the lawsuit alleges, and therefore must pay termination fees plus amounts equal to the estimated remaining value of the contracts, based on current newsprint prices.

Enron says Chicago-based Tribune owes $22.9 million, while San Jose, Calif.-based Knight Ridder owes $8.7 million.

Both companies signed multiyear contracts, known as swap transactions, with Enron to hedge against fluctuations in the price of newsprint. Enron signed swap transactions for a variety of commodities, including electricity, natural gas, and even space on high-speed Internet lines.

Under the agreements, the media companies set the price they would pay for a specific amount of newsprint. If the actual market value of newsprint fell below the contract price, the media companies paid Enron the difference. If the market value was higher than the contract price, Enron paid the remainder.

The Times Mirror Co., a unit of the Tribune Co., signed swap transactions with Enron in 1997 that were to terminate in April 2002, August 2002, and July 2003. The deals required Times Mirror to purchase some 13,000 metric tons of newsprint per month at prices ranging from $605 per metric ton to $618 per metric ton.

Tribune, meanwhile, signed a seven-year agreement that was scheduled to terminate in December 2008. The deal required Tribune to purchase 25,000 metric tons annually for $605 per metric ton.

The media companies stopped making payments shortly after Enron revealed questionable accounting practices and filed for bankruptcy protection in December 2001.

Swap transactions typically include a clause allowing either side to back out if their counterparty cannot live up to the terms of the deal, said Kevin Mason, an analyst at Equity Research Associates in Vancouver. That is the argument both Tribune and Knight Ridder are likely to make in court, Mason said.

With the drop in advertising amid the economic downturn, newspapers have gotten thinner and the price of newsprint has fallen. In July, the average price for a metric ton of newsprint was $425.

Knight Ridder did not immediately return a call seeking comment. A spokesman for Enron said the company would not comment on the lawsuits. A Tribune spokeswoman said the company does not comment on pending litigation.

A pre-trial conference is scheduled for Sept. 19 at the United States Bankruptcy Court in New York.