Inside Tribune Newsrooms: Assurances of 'Business As Usual' -- as Outsiders Worry More Trouble Will Follow

By: Mark Fitzgerald and Jennifer Saba As word of Tribune Co.?s bankruptcy filing reached the Chicago Tribune newsroom Monday, there were constant reassurances from management that things sounded worse than they are.

?They?re telling us, it?s business as usual,? said one journalist. ?As long as we?re making money, we?ll get out of this."

That was Tribune Chairman and CEO Sam Zell?s message, too, in a long memo to employees that blamed the financial fix that led to the Chapter 11 filing on a ?perfect storm, to say the least.?

?Most importantly, I want to stress that we will continue to operate our business as usual,? Zell wrote. ?That includes meeting payroll and covering benefits (such as healthcare, disability and others), and paying vendors for all goods and services they provide to us going forward.?

But from Tuesday's New Tork Times update on the Tribune disaster: "A note on an internal Tribune Company Web site said, 'All ongoing severance payments, deferred compensation and other payments to former employees have been discontinued and will be the subject of later proceedings before the court.' That made it apparent that employees who recently were laid off or took buyouts would join the long list of unsecured creditors.

"James Gerstenzang, a reporter who left the Los Angeles Times?s bureau in Washington last month, said he was trying to figure out whether he was one of those people. He said he had just sent in the last paperwork to approve his expected buyout payment ? 49 weeks of pay, after more than 24 years. 'What, I?m supposed to be shocked that Sam Zell isn?t keeping his word?' he asked. 'This was their commitment and their credibility.'"

Outside the newsrooms of Tribune?s sprawling media business, observers saw the bankruptcy filing as a chilling harbinger of financial failure that could spread well beyond Tribune Tower.

?Companies operate under Chapter 11 often, it?s not unusual,? said Lauren Rich Fine, the former Merrill Lynch stock analyst now at Kent State University?s journalism school. ?Its not usual for companies to come back out again. What?s challenging here is there?s a feeling there are other newspaper companies on the brink. Look how their stocks are trading....

Fine said if she were a Tribune employee, ?I would be very worried about the ESOP.?

But another industry observer argues that while Tribune employees -- who have just gone through another wave of layoffs with promises of more to come before the end of the year -- are understandably concerned about the bankruptcy, the fact that it came less than a year after the company went private through an ESOP (employees stock ownership plan) could actually help them.

Bankruptcy is ?a bad thing for creditors who might not get paid 100 cents on the dollar, and for equity holders like Zell and ESOP,? said Alan Mutter, the San Francisco-based consultant who writes the widely followed industry blog Reflections of a Newsosaur. ?The good news for employees is [the ESOP] has only been going in a year. They didn?t put a lot of money in it.?

Chapter 11, he notes, freezes all the company?s debts and obligations, as well as interest on its accounts payable.

But Mutter, too, thinks the bankruptcy portends bad news for other heavily indebted chains.

?The outlook is not great for newspaper advertising,? he said. ?As bad as everybody thought it was going to be, it?s actually worse ? Absent this debt load, is it a stable growing business? its not. You kind of have to wonder what do you do here??

In his memo, Zell said employee 401 (k) retirement plans are ?unaffected by the filing,? as are, ?in general, the existing benefits in the pension and cash balance plans.?

He added, ?The ESOP is part of the ownership structure, so its value and role long-term will be determined in the restructuring. We believe the structure is a valuable asset to the company and that there are strong reasons to preserve it.?