Posted by chicagomedia.org on September 06, 2009 at 11:13:27:
Plenty of challenges await potential new owners of Sun-Times Media Group
Phil Rosenthal
Tribune Media
September 6, 2009
A group of investors led by Jim Tyree, chairman of the Chicagoland Chamber of Commerce as well as Mesirow Financial Holdings Inc., may be able to save the scrappy tabloid Chicago Sun-Times with a bid for its parent company.
Assuming the expected bid -- contingent on union concessions, bankruptcy court approval and other factors -- is successful, that's one thing. Then comes the business of actually picking up the tab.
What Tyree and company look to buy are time and opportunity. They want to acquire the Chicago market's No. 2 daily newspaper and dozens of other area publications and Web sites. But with them they'll take on a series of expensive problems that must be solved to keep them viable. Otherwise, the factors that have put the company on the brink of failure still will push it over the edge.
Chief among those challenges: The company must stop bleeding cash. Boost revenue, cut costs, whatever -- but long-time survival is incumbent on reversing the cash-flow trends.
When major shareholder Davidson Kempner Capital Management last fall called for the overhaul of the Sun-Times Media board that led to Jeremy Halbreich taking over as chairman in February, it said the company had been hemorrhaging cash since 2006 at a rate of around $20 million per quarter, which translates to about $1.5 million a week, more than $200,000 a day, for close to two years.
Several deep cuts, the combination of some operations, the elimination of others and a Chapter 11 bankruptcy filing later, those losses have slowed somewhat despite the revenue declines afflicting the entire industry. But a court document showed Sun-Times Media still went through another $3.8 million in cash in July, leaving its dwindling reserve at only $19.3 million.
So unless the Tyree group is content to operate the company at a loss, something will have to change.
"I think there can be a business model struck from whatever revenue you think you can generate, [but] it has to be a conservative one," Tyree said in May, after his interest in the Sun-Times group was first reported and before he stopped commenting on a potential deal. "I would not be interested at all if that were not the case. ... You just have to be innovative, not tied to the past."
A lot of people peg the beginning of the troubles to 1984, when Rupert Murdoch took control of the Sun-Times from Marshall Field V.
But in retrospect, Murdoch might well have been a better newspaper boss than most who followed. The government forced him to unload the paper in 1986 after his purchase of WFLD-Ch. 32, not allowing the Sun-Times the same waiver of media cross-ownership rules that enable the rival Chicago Tribune to be part of the same company as WGN-Ch. 9.
As a former Sun-Timesman myself, to say nothing of being a citizen of this community, it is galling to consider where Sun-Times Media might be if not for the leadership of now-imprisoned Conrad Black, whose legacy includes a tax liability of around $600 million. For that matter, imagine how much more sound the Sun-Times' parent might be had Halbreich's predecessor and his team filed for bankruptcy sooner, when there was more cash on hand.
It will be incumbent on the Tyree group's management team to reduce costs in ways that don't make the product less appealing to readers and advertisers. In fact, it might be wise to increase the company's investment in certain aspects of its content. Otherwise, what will there be for readers to read? And without readers, there will be no advertisers.
It's not a newspaper company and few probably remember it, but CBS Inc. owned Fender Musical Instruments for a time and pretty much ran it into the ground. Sales bottomed out at $20 million in 1985, as the company had gone from being a leader in its industry to simply a distributor that used its name to move foreign-made instruments.
A group led by Fender's president bought the company and set about returning the guitarmaker to its past tradition and glory. By 1990, according to the Orange County Register in California, sales reached an unprecedented $100 million and the company bought out the 30 percent interest of the investment banking firm that helped engineer the acquisition from CBS.
That firm was Mesirow Financial, and that was the year Tyree became its president at age 32.
Now 51, he has overcome two near-fatal bouts with diabetes that nearly left him blind. Growing up in Beverly, he was the youngest of seven kids whose parents separated when he was 14, according to a BusinessWeek profile that noted he has been working since he was teen, doing everything from caddying and hawking stereos to driving a forklift.
There obviously have been some losses along the way, but Tyree and his fellow investors surely know the odds they're up against. That's what makes it interesting.
The trick will be to keep the Sun-Times and its sister papers interesting too.