Zell's Losing Streak
-- Former L.A. Times newsman Joel Sappell gives Sam Zell, head at Sun-Sentinel parent Tribune Co., a parting shot on the way out the door. Here's the crux of it:
Our optimism grew when Zell, soon after his highly leveraged takeover of Tribune, promised investment, not retrenchment. But that didn't happen. Although a gifted real estate man, he'd underestimated the severity of the newspaper crisis and ordered reductions.
He also quickly began to reveal himself as thin-skinned and crass, upbraiding Tribune journalists who challenged his vision. In a meeting with staffers in Florida, he punctuated his response to a female photographer's question about the public service nature of journalism with a self-satisfied "fuck you." When word of the incident spread through our newsroom, jaws dropped and hearts sank.
Then came Zell's visit to Washington, where he gruffly informed reporters and editors that their operation was bloated, a drain on the company. Almost instantaneously, e-mails began flying into the home office with a blow-by-blow of Zell's performance, correctly described in the blog L.A. Observed (laobserved.com) as a "psychic bloodbath."
Zell has insisted that his over-the-top words are meant to shake years of complacency from the organization. Maybe so, but I'd heard enough. Soon, I was sitting in my first buyout briefing in a room crowded with big names and many who'd worked behind the scenes with little public notice or acclaim.
I think it's safe to say the honeymoon is over, since the bitter divorces have already begun. You get the feeling none of this is going to end well. Looks like Zell's lost his Midas touch. Check out his investment in Starwood Hotels. In February he bought 14.75 million shares of the hotel chain (which owns the Sheraton, among other brands) for an average price of about $50. Today those shares are going for about $46, meaning his loss on paper is approaching $60 million. And the news is not good as Starwood -- and just about every other hotel chain -- have experienced declining earnings and are forecasting a lousy year ahead. Now, of course the stock could rise, but their going much higher than $50 anytime soon sounds farfetched to me. I wouldn't be surprised if it goes under $40 in the coming months.
So why did the famous grave dancing billionaire buy a big chunk of a hotel chain at a premium price just as the country was heading into recession? He might know something we don't. But one clue came when he told CNBC at the end of February that he expected the housing market to rebound in March. Oops.
It's called a losing streak, Sam. The good news is that the housing market will rebound -- and Tribune and Starwood should rise with it. Might take a few years though, so hunker down and ... hell, really try to put out some good newspapers while you're at it.
-- While I'm here, I should have mentioned this one yesterday: Carl Hiaasen tells Charlie Crist to drop his name out of the John McCain V.P. sweepstakes. Why? Because he should get some of his promised work done in Florida before he jaunts off. He writes:
"With so much left undone, and dark economic clouds on the horizon, it's awfully early for Crist to be dreaming about higher office."
True that. But that is also, ironically, exactly the reason Crist wants to escape to Washington. He knows things are only going to get worse and right now the getting's good.