Newspaper Bankruptcy Watch: Lee Enterprises

It’s ironic that Lee Enterprises, a company that prides itself on the transparency and openness of its journalism, is engaging in a bit of financial trickery to fool investors.

Lee is a sinking ship. Its anchor has snagged on $2 billion in debt while the company is being pounded by a fierce gale.

To keep investors from fleeing in the lifeboats, Lee Enterprises announced today that it’s resorting to the financial equivalent of rearranging the deck chairs: a reverse stock split.

This is an utterly meaningless gesture designed to make it seem that the company’s worthless shares actually have more value. If you’re stupid enough to buy Lee stock after that, you deserve what you get.

Investors weren’t fooled. Shares of Lee fell nearly 14 percent today to close at 31 cents.

A reverse stock split means that instead of 100 shares of Lee worth $31 at today’s closing price, you will have 5, 10, 20, or 50 shares of Lee worth $31. It’s like exchanging 310 dimes for 124 quarters.

Nothing changes. It does nothing to address Lee’s huge problems in either the short-term or the long-term. That’s why the list of companies that went into bankruptcy after a reverse stock split is long.

But Lee is desperate to rejoin the New York Stock Exchange, which doesn’t want to trade piddly-ass penny stocks. If only the company cared as much about journalism as it does about its stock price.

Addendum: The company did receive a temporary reprieve from certain “covenants” on its Pulitzer debt, which means that Lee isn’t in default, yet. However, if I’m reading the company’s release correctly, Lee still owes a $306m balloon payment due in April. (background here).

The Real Cost of Gold II

The Economist: According to the Tanzania Albino Society, at least 35 albinos were murdered in Tanzania last year to supply witch doctors with limbs, organs and hair for their potions.

Investigators say the body parts of a single murdered albino sell for over $1,000, with the skin and flesh dried out and set into amulets and the bones ground down into a powder. Artisanal miners in the gold and diamond fields directly south of Lake Victoria are the main buyers. Some sprinkle albino powder on the walls of their narrow pits, hoping for glitter. Uneducated and desperate to strike riches, they are taken in by witch doctors’ stories of the wealth-giving properties of the potions.

Sweet Deal!

OK, I know Mitch Wade got a good deal at his sentencing but this is going too far:

Update: I just got off the phone with the Bureau of Prisons. What this means is that Mitch is in bureaucratic limbo. He’s been given a date to get himself to prison, but as of now (Jan. 23), he’s still a free man. In short, he’s en route.

Newspaper Bankruptcy Watch: The New York Times

In End Times, Michael Hirschorn of The Atlantic who gazes into his crystal ball and sees the death of The New York Times.

It’s certainly plausible. Earnings reports released by the New York Times Company in October indicate that drastic measures will have to be taken over the next five months or the paper will default on some $400 million in debt. With more than $1billion in debt already on the books, only $46million in cash reserves as of October, and no clear way to tap into the capital markets (the company’s debt was recently reduced to junk status), the paper’s future doesn’t look good.

Times spokeswoman Catherine Mathis responds with a mighty bitchslap:

Your article “End Times” which speculates on whether The New York Times can survive the death of journalism, leaves a lot to be desired from the standpoint of . . . well, journalism.

Granted Hirschorn is being a bit irresponsible because, as he himself admits, the chances that the Times will go under are very slim, but methinks Mathis doth protesteth too much.

The Times is in trouble: The paper recently announced plans to borrow $225m against its beautiful, brand new steel-and-glass 52-story headquarters to deal with a cash crunch of its own making.

You would think that given what’s going on in the industry, the Times would tighten up operations, but American Thinker points out that in March 2007 the company increased its dividend 31 percent to 23 cents a share to “return more capital to shareholders.”

Twenty-three cents a share may not sound like a lot but it cost the company $132m a year. Of that, $25m went into the accounts of the Ochs-Sulzburger family that controls the paper. The family rode that gravy train until November, when the dividend was slashed to 6 cents.

But the Old Grey Lady isn’t exactly sitting on a pile of cash like, say, Microsoft. While the family was collecting its dividend checks, the Times was trying (and failing) to slash its costs by about $140m a year, almost exactly the amount of the dividend.

The Times couldn’t right the ship, so it has been tapping $400m from its two revolving lines of credit to pay expenses, including the dividend. One of those credit lines is expiring in May and no one’s willing to lend these days. So the Times is now borrowing against its headquarters to pay the bills. (Mathis points out that technically, the Times isn’t borrowing but arranging a sale-leaseback, but I think that’s a distinction without a difference.)

The Times borrowed to pay its investors with money it doesn’t really have. Somebody please explain to me how this is different than a Ponzi scheme.