A two-week hearing begins Monday to determine the fate of Tribune Co. more than two years after an ill-advised $8.2 billion buyout drove one of the oldest U.S. media companies into bankruptcy protection.
The proceedings follow four years of tumult and intrigue at Tribune Co. The company has been through the disgrace of a bankruptcy case that has lasted far longer than planned, a CEO departure triggered by complaints about management's raunchiness and the whiff of a financial scandal fanned by a court-appointed examiner's conclusion that parts of the 2007 buyout had bordered on fraud.
The hearing in U.S. Bankruptcy Court in Wilmington, Del., will affect the ownership of the Los Angeles Times, the Chicago Tribune, The Sun of Baltimore, other daily newspapers and 23 television stations. The TV stations include Chicago-based WGN, which reaches more than 70 million homes nationwide, mostly through cable and satellite systems.
The hearing edges Tribune Co. closer toward shedding most of the roughly $13 billion that it carried into bankruptcy protection. If it can unload the debt, the company believes it can make money while it tries to adapt to a marketing shift to the Internet.
Judge Kevin Carey is being asked to choose between two competing reorganization plans. The plans differ in their appraisals of Tribune Co.'s current value and their limitations on which participants in the troublesome buyout can be sued for saddling the company with too much debt.
Either way, the outcome is likely to leave Tribune Co. controlled by its creditors. The new owners are expected to replace the patchwork management team that has been running the Chicago-based company since the previous CEO, Randy Michaels, resigned in October amid complaints about risque conduct.
Tribune Co., founded in 1847, filed for bankruptcy protection in December 2008, making it the first major U.S. newspaper publisher to do so during the Great Recession. The deep downturn magnified the challenges facing newspaper publishers as readers and advertisers moved from print to digital alternatives.
The slump prompted more than a dozen other newspaper publishers to follow Tribune Co. into bankruptcy protection. Like Tribune Co., several of them were saddled with billions of debt taken on during better times. Most of them have emerged from bankruptcy protection already.
The complex 2007 buyout engineered by real estate mogul Sam Zell complicated Tribune Co.'s effort to return to normal business operations. The allegations of financial conduct made many creditors less inclined to make concessions during negotiations on a reorganization plan. The independent examiner's report last summer prompted the company to back off one proposal.
This month's hearing makes it more likely that Tribune Co. will finally emerge from bankruptcy court this year. The legal fallout could last for years, however. Both plans envision creditors pursuing lawsuits in an attempt to recover more of their losses, and there could be an appeal of Carey's decision in the case.
The stakes riding on the resolution of the convoluted saga are expected to attract a crowd. Carey is setting up a video feed in an overflow room to accommodate up to 100 more people beyond the 175 spectators that can cram into his courtroom. The judge also is clearing space in the courtroom for more than 2,000 exhibits expected to be submitted during the hearing.
"It will take some time and involve some tedium," Carey said during a housekeeping hearing last week.
The hearings also could shed more light on Tribune Co.'s operations and the behind-the-scenes maneuvering that led to the Zell buyout, which took the company private and turned employees into part-owners.
Reams of documents in the case have been kept under wraps to protect what has been described as confidential business information. Carey so far has rejected requests to unseal the documents, but he has warned that some of the information could come out during the hearing because he doesn't plan to close the courtroom.
Tribune Co. favors a plan that would turn over ownership to the company's major creditors, including some that had helped line up the ruinous financing, which already has triggered lawsuits. It would shield the lenders involved in the buyout from lawsuits after the company emerges from Chapter 11. Opponents of the plan contend it would also block attempts to sue former Tribune Co. shareholders who received $4.3 billion in the buyout's first phase.
This proposal has the backing of Tribune's Co.'s proposed new owners – a group led by banker JPMorgan Chase & Co., distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management. It's also supported by Tribune Co.'s committee for unsecured creditors.
A group of creditors that owns Tribune Co. debt issued before the Zell buyout has proposed an alternative plan primarily because they want fewer limits on which parties can be sued for alleged fraud. The plan also contends these note holders, led by hedge fund Aurelius Capital, are entitled to be paid bankruptcy claims totaling $1.2 billion instead of $761 million offered in the proposal backed by Tribune Co.
Zell, still Tribune Co.'s chairman, has filed objections to both plans because he and a business arm, Equity Group Investments, would remain exposed to lawsuits alleging fraud.
The competing reorganization plans also came up with dramatically different estimates on Tribune Co.'s business value. The company-backed plan pegs it at $6.7 billion, compared with $8.3 billion in the Aurelius-led proposal.
Tribune Co. has been gradually recovering from the recession, primarily because of an industry-wide revival in television advertising. The company's revenue last year totaled $3.1 billion, 2 percent below 2009, based on court documents.
But the company still gets more of its revenue from newspapers and other publishing sources. Tribune Co. has predicted its revenue this year will decline 4 percent, dip another 2 percent in 2012 and slip 3 percent in 2013.
Those forecasts assume the new owners won't break the company apart by selling some of the newspapers and TV stations.