Rich Boys Buy­ing Cor­po­rate Toys

The Washington Post Sunday - - Business -

When they come into money, men are known to go out and buy houses or sports cars or yachts. But when they come into lots and lots of money, some men can’t re­sist the urge to buy cor­po­rate play­things.

Re­ally big com­pa­nies. Com­pa­nies in trou­ble. Com­pa­nies in in­dus­tries that they know very lit­tle about.

It be­gan last week with the an­nounce­ment that Sam Zell, who just sold his real es­tate em­pire to the Black­stone Group in a deal val­ued at $39 bil­lion, would use $315 mil­lion of the pro­ceeds to buy the ail­ing Tri­bune Co. in a com­plex deal val­ued at $13.2 bil­lion. As the owner of big-city news­pa­pers and television sta­tions (in­clud­ing the Bal­ti­more Sun), Tri­bune is in the midst of try­ing to make the painful tran­si­tion from the old me­dia to the new.

As yet, there are no in­di­ca­tions that Zell has thought deeply about that tran­si­tion or fig­ured out how to stanch the de­cline in ad­ver­tis­ing rev­enue. In­stead, what he has of­fered is a highly lever­aged fi­nanc­ing plan and an em­ployee own­er­ship struc­ture that will give him a gi­ant tax break and give work­ers a piece of the ac­tion, al­beit with­out any say in how the com­pany is run.

Even be­fore the ink was dry on the deal, how­ever, Zell had set up a meet­ing with David Gef­fen, the Hol­ly­wood wheeler-dealer, who is just one of sev­eral Los An­ge­les zil­lion­aires hop­ing to per­suade Zell to break off a piece of his new Tri­bune em­pire and sell the Los An­ge­les Times.

Of course, what­ever the prob­lems of me­dia com­pa­nies, they pale in com­par­i­son to the chal­lenges faced by the Big Three auto com­pa­nies. But ap­par­ently that’s what at­tracted Kirk Kerko­rian to make a $4.5 bil­lion of­fer for Chrysler last week. This is Kerko­rian’s sec­ond run at Chrysler in 17 years, and it comes just months af­ter his failed at­tempt to force a re­struc­tur­ing of Gen­eral Mo­tors. Kerko­rian’s of­fer is con­tin­gent on his reach­ing agree­ment with union­ized work­ers to take cuts in pay and ben­e­fits in ex­change for an own­er­ship stake in the ail­ing au­tomaker. But he faces an up­hill bat­tle not only with the au­towork­ers union but also with ex­ec­u­tives at the par­ent com­pany in Ger­many, whom he ac­cused of snook­er­ing him and other in­vestors to win ap­proval of the Daim­lerChrysler merger in 1998.

As it hap­pens, Kerko­rian is not the only bid­der for Chrysler. In ad­di­tion to a num­ber of private-eq­uity firms, there is also Cana­dian auto parts mag­nate, horse breeder and race­track owner Frank Stronach. Stronach right­fully claims to know a thing or two about the auto busi­ness and deal­ing with the UAW. But even he has of­fered few de­tails on how to turn a money-los­ing op­er­a­tion with medi­ocre prod­ucts and $15 bil­lion in un­funded re­tiree obli­ga­tions into any­one’s pot of gold.


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