ir a principal |
Ir a lateral
I was driving down the street yesterday and saw the neighborhood Blockbuster was closing down. This weekend. Everything had to go. Now, while I picked up some very nice deals, long-term this stinks. I am one of those dinosaurs who does not stream movies on line. Oh, I will, but it isn't the way I like to do it. I'll have more of this, particular rant later, but for now I'll just say that I like having the hard copy in my own hands. I don't like depending on someone else's servers and someone else's connections.
Anyway. A little digging told me what was going on at Blockbuster. Back in July, Blockbuster was trumpeting the successful conclusion of a Chapter 11 liquidation, having sold the farm to Dish Network. 90% of the stores would remain open, jobs would be saved, landlords would not be facing yet more dark space, blah, blah blah. The sun was bright, and all was right with the world.A happy ending is a story that hasn't finished yet.
Digging through Dish Network's latest 10-K yields the following on page 31: In addition, our Blockbuster retail store operations face increasing competition from video rental kiosk, streaming and mail order businesses. These competitive pressures have contributed to weak store-level financial performance at many of our Blockbuster retail stores. We expect to close over 500 domestic stores during the first half of 2012 as a result of weak store-level financial performance.
We continue to evaluate the impact of certain factors, including, among other things, competitive pressures, the scale of our Blockbuster retail operations and other issues impacting the store-level financial performance of our Blockbuster retail stores. These factors, or other reasons, could lead us to close additional Blockbuster retail stores. There is no assurance that we will achieve the expected benefits from the Blockbuster Acquisition.
That's 1/3 of the stores Dish bought being shut down now, with more coming. So much for saving the stores, the jobs, etc.
And that's the dirty, little secret of Chapter 11. You can negotiate and strategize for months. You can force a plan through. You can even walk in with a pre-pack and all your ducks in a row and be out in a month. And a year later, it can still all be gone.
Lee Enterprises has filed a pre-pack Chapter 11, basically to force some dissenting creditors to go along with restructuring the company's massive debt load. For months now this hasn't been a matter of "whether" but "when". Lee, frankly, is a mess, and while it is pretending to be singing "Kum-Ba-Ya" with its largest creditors now, this looks like nothing more than a game of kick the can.
Full disclosure: I used to be in newspapers, and Lee publishes a lot of them. Locally, it publishes the Provo Herald. Back in my old, home territories, it publishes the Quad City Times and the Muscatine Journal (in Iowa) and the Lincoln Journal-Star (in Nebraska). I worked for the Des Moines Register, and the Times was our chief rival in Eastern Iowa. On the other hand, when I was in high school, the Star ran a feature article on me, complete with a picture of my not-so-smiling face, on the front page. I guess that makes me neutral.
In all seriousness, you have to wonder who is driving the bus at Lee. You can trace this train wreck to 2005, when the company acquired Pulitzer, Inc. (owner of the St. Louis Post-Dispatch) for a cool $1.5 billion. Newspapers folding left and right and the industry in a general state of free-fall, and Lee decides to drop a bill and a half on acquisition. Of course it was 2005, credit was cheap and loose, and the economy could only go up, just ask The Blessed St. Greenspan. You can imagine the dollar signs in Goldman Sachs's eyes when it heard Lee was looking for financing. You can imagine the pitchers glossing over the 1.5 billion things wrong with the deal, including the complete lack of supporting cash flow and acquisition value and the requirement for unanimous creditor approval for refinancing (which is what forced the Chapter 11). Anybody who greenlighted this checked both brain and spine at the boardroom door.
Now GoldSacks and its cronies are getting a 13% piece of the action, and you can bet they won't put up with any management shenanigans. And I expect the shenanigan attempts to commence soon. Lee's plan defers the due dates on all those bonds, but the bonds are still there, ticking away, and its revenue stream is so poor it must have been handing out Swisher Sweets to celebrate the deal. Lee certainly couldn't cover Montecristo A's. On top of that, a big chunk of the debt isn't really deferred. It's currently at 10.55% (Can Mary Junck say "Junk"?), and in a year the escalator clause kicks in. There is no way Lee can cover that. I figure that in perhaps two years, the creditors will pull the plug, part Lee out, and hold fire sales for the papers that are still standing. And there will go a big chunk of what's left of this country's news media straight down the drain.
Well, it was just a matter of time. Every other major, U.S. airline had taken a trip through bankruptcy court in the last 10 years, and now American Airlines, via its parent AMR Corp., has gone in. AMR cites two, big causes: fuel costs and labor costs. Ignore the former; it's all about the latter. AMR will use 1113 to reject the current collective bargaining agreements, 1114 to severely curtail retirement benefits, and 29 USC 1341 to do a distress termination of the pension plans and foist them on the Pension Benefit Guaranty Corporation (i.e. we taxpayers). No word about a pre-pack plan, but you can bet there has been a bunch of negotiating going on. Watch the first-day motions to see who is pulling the levers. You can be sure it isn't the unions, who haven't even been invited to a side table.
It's easy to feel sorry for retirees losing pensions, but these tended to be real Rolls Royce models, while the rest of us muddle along with Yugos (Actually, mine is more of a skateboard.), so it isn't hard to see how companies can't keep funding them. There are two things that gripe me, though. First, it's apparently OK for a multinational corporation to walk away from obligations like these, but morally reprehensible for poor schlubs to bail on economically absurd mortgages. Sorry, that's hypocritical horse hockey. Second, AMR entered into these contracts with its eyes wide open and led by the managerial geniuses who will be running the reorganization and who are unlikely to take any kind of meaningful haircut for putting the airline in this position. If you want to talk about rewarding failure, start right there.
Dippin' Dots, which makes the ice cream equivalent of little chocolate doughnuts (You just keep popping them in until you 'splode.) has filed Chapter 11. According to its filing, it has a decent shot at reorganizing, but we'll see if the filing is reality. The bigger question is, if ice cream companies are going down (And they are. Goodbye Snelgroves!), just what sort of civilization are we creating here?
BTW, it's absurd that the spell checker here thinks "doughnut" is misspelled. But then again, it thinks "blog" is misspelled.
