The Road to Zell
How the Tribune deal went so bad, so fast.
By Daniel Gross | Newsweek Web Exclusive
Dec 9, 2008 | Updated: 2:41 p.m. ET Dec 9, 2008
What's the difference between Smart Money and Dumb Money? Twelve months, the popping of a credit bubble, and about $800 million.
In the run up of asset prices, which ended about a year ago, everyone was a genius. Hedge fund managers felt wise for borrowing large sums of money and buying stocks, commodities, or pretty much anything that went up. Private equity barons bought companies, issued debt to pay themselves dividends, and were hailed as master investors. Heck, even millions of homeowners felt like Einsteins for refinancing at lower rates. And hardly anyone was deemed smarter than Sam Zell.
The Chicago-based real estate investor, nicknamed the Grave Dancer for his delight in picking up dead businesses and reviving them, built Equity Office Properties, a collection of high-end office buildings. In February 2007, Zell was lauded as a genius for unloading the company in an all-cash transaction valued at about $38 billion (Blackstone put in $6.4 billion in cash and borrowed the rest), after a frenzied bidding process. But Zell wasn't content to take his winnings and stow them under the mattress. Having benefited from the dumb money culture—people willing to pay high prices for leveraged assets in the hope and expectation that they'd be able to sell them to other debt-fueled buyers at even higher prices—Zell loudly plunged right back into it. (Regular readers of this column should expect to hear more about the culture of dumb money—I've got an electronic book about it in the works with the Free Press.) In December 2007, Zell closed on the $8.2 billion acquisition of the Tribune Co., putting in $315 million of his own money and borrowing much of the rest. Make no mistake about it, The Tribune Company was a classic dumb money play, and not just because its main assets were declining newspapers.
Read More >>
Posts
No comments:
Post a Comment