And cost cutting is most likely afoot at Fairfax under new CEO Brian McCarthy:TRIBUNE Company has filed for bankruptcy protection, in a sign of worsening trouble for the newspaper industry.
In recent days, as Chicago-based Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired investment bank Lazard as its financial adviser and law firm Sidley Austin to advise the company on a possible trip through Chapter 11 bankruptcy, people familiar with the matter say.
Tribune owns eight major daily newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, plus a string of local TV stations.
A Tribune spokesman said the company doesn't comment on rumours or speculation. A spokeswoman for Lazard didn't respond to requests for comment. Representatives of Sidley Austin couldn't be reached for comment.
Tribune's latest actions underscore the deepening distress enveloping Tribune and other newspaper publishers. Their businesses are being battered by dwindling advertising sales, and many are carrying debt loads that are unmanageable in current market conditions. Industry insiders expect some papers will need to fold in coming months or seek protection from creditors to reorganise.
Tribune has been on wobbly footing since last December, when real-estate mogul Samuel Zell led a debt-backed deal to take the company private. Tribune has stayed ahead of its $US12 billion ($18 billion) in borrowings with the help of asset sales. Now, however, shrinking profits are tightening the noose.
The company's cash flow may not be enough to cover nearly $US1 billion in interest payments due this year, and Tribune owes a $US512 million debt payment in June.
One of Tribune's most pressing concerns: The company is likely to be in violation of debt terms that limit borrowings at the end of the year to nine times its adjusted profits. The ratio stood at 8.3 at the end of the second quarter, before Tribune reported an 83 per cent decline in operating profit for the three months ended September 28.
Violations of such debt covenants have become commonplace for newspaper companies as their profits have ebbed. Lenders so far have been willing to give the companies a pass in exchange for higher interest rates and other concessions, but Tribune has little wiggle room. Terms of the company's debt already are so loose and its financial standing so unsteady that a covenant waiver may not help.
Tribune's hiring of Lazard, meanwhile, brings it a firm experienced in debt restructuring, and one that has become a go-to adviser for newspaper companies in financial distress.
Even as its financial performance worsens, Tribune has some options. A sale of its Chicago Cubs baseball team is under way, and Tribune owns valuable stakes in businesses including the cable-TV channel Food Network.
Tribune already has auctioned off pieces of the company, including the Long Island, New York., daily Newsday to raise cash. Now, frozen credit markets have depressed sale prices.
Selling off more newspapers may not be a viable alternative because buyers are scarce and Tribune may be better off holding onto the profits from its papers.
SPECULATION is growing that likely new Fairfax Media chief executive Brian McCarthy could restructure senior management.
It is likely he will elevate more former key Rural Press executives to top positions in the Fairfax group.
It is understood Mr McCarthy will be formally anointed as CEO of Fairfax at a 9.30am board meeting in Sydney today.
The meeting comes after broking firm Goldman Sachs JBWere revealed last night that Fairfax's weekly page count across its main metropolitan newspapers, The Sydney Morning Herald, The Age and The Australian Financial Review, fell by about 5 per cent. This was led by a 20 per cent fall in classified ad pages across all mastheads.
Today's board meeting will also discuss how it plans to pay down $2.5 billion in debt. It will examine immediate options that include cutting dividends, selling off assets and more cost cuts. Mr McCarthy's former role as CEO of the leanly run Rural Press, taken over by Fairfax last year, is seen as the perfect training for Fairfax's necessary belt-tightening.
Fairfax is moving on from its expansionary phase of recent years -- which saw it clock up debt by making a number of takeovers -- to one of getting the best out of existing assets.
Speculation has centred on the possible elevation to more senior roles of a raft of former colleagues of Mr McCarthy at the regional newspaper group, all schooled in what has been dubbed the Rural Press "School of Cost Management".
As one media analyst at a broking firm put it yesterday: "Some of the Rural Press team have effectively been the shadow cabinet since the merger with Fairfax. But following the landslide election win of Brian McCarthy as Prime Minister of Fairfax, they are now likely to move to the front bench."
Those possibly in line for elevation under such a policy could include: Brian Cassell, currently Fairfax's group finance general manager; Allen Williams, head of community newspapers for the Hunter and Illawarra regions; and Allan Browne, CEO of regional publishing, southern and western.
Mr Cassell is particularly in touch with the McCarthy approach, having been his trusted finance lieutenant as general manager, accounting and finance, for Rural Press, a company famed for its lean approach.
Mr Cassell's current finance role at Fairfax sees him as No2 to the company's current CFO, Sankar Narayan. Mr Narayan was appointed in April 2004, under the former Fairfax regime of Fred Hilmer. Like Mr Hilmer, he had a management consulting background.
Mr Narayan is broadly viewed by analysts as a "strategic" CFO who was appropriate for the company's expansion of recent years. However, as one media boss put it yesterday, Mr Narayan is not regarded "as an operational CEO".
Alternatively, informed sources say, while Mr Cassell is viewed as a "numbers guy, not a strategic CFO", this could be an appropriate choice for the company in the finance area as it moves to a belt-tightening phase under Mr McCarthy.
Already, Mr McCarthy -- who for 20 months has been Fairfax's head of Australian operations -- has had another former Rural Press executive as a key right-hand man, with Lloyd Whish-Wilson CEO of Fairfax's NSW and ACT metropolitan publishing.
There have been suggestions of a restructure of roles at the top of Fairfax under a McCarthy regime. Mr McCarthy may look to restructure national and metropolitan newspapers to break down silos within the business.
One more radical scenario could see a return of Fairfax to a single national management structure, as opposed to the state-based silos now in place.
Late yesterday, it was revealed Fairfax's departed CEO, David Kirk, completed his term still owning a total of 1.97 million of the company's shares.
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