Tribune Co.: Give Sam Zell credit for unflappable optimism in the face of overwhelming odds. The Chicago billionaire believed as much in the future of Tribune Co., and by extension newspapers, as in his power to save them, famously declaring, "They ain't ended, and they're not gonna end," as he took Tribune private in late 2007. The real estate financier promised to invest $315 million into the $8.2 billion employee shareowner privatization, a circuitous process that quickly devolved into "the transaction from hell," as he put it. The deal fell under regulatory scrutiny, lenders' remorse and darkening prospects for newspapers. Declining revenue, recession, a credit crunch and burgeoning liabilities (roughly $13 billion) all combined to dash Zell's expectations for the publishing empire, which includes the Chicago Tribune, Los Angeles Times, Baltimore Sun and 23 television stations, among other assets. The company, whose other plum holdings -- the Chicago Cubs baseball team and its Wrigley Field home -- are for sale, lost $2.8 billion in 2008 as of Sept. 28, largely due to steep write-downs on newspaper assets. On Dec. 8, less than a year after Zell's ESOP deal closed, Tribune filed for bankruptcy protection, a victim of, as Zell says, a "perfect storm."
Ziff Davis Holdings Inc.: Willis Stein & Partners LLC may have had reason to be sanguine about Ziff Davis Holdings Inc., when the investor acquired the publishing assets from Softbank Corp. for $780 million in April 2000, putting in roughly $550 million. In 1996, Willis Stein, teaming with magazine veteran Jim Dunning, bought publishing house Petersen Cos. for $465 million, took it public the following year, then sold it to Emap plc for $1.5 billion in 1999. The team hoped for a repeat performance with Ziff Davis, the parent of the publisher of PC Magazine, CIO Insight, Electronic Gaming Monthly and other tech-centric titles, but their timing was off. The company had to cope with a messy breakup in 2001, followed by a protracted restructuring. Its subsequent focus on publishing while print advertisers were migrating toward Internet publications seemed remarkably short-sighted. In 2006, the parent decided to unload three large divisions, selling its Enterprise Group to Insight Venture Partners for $150 million in 2007. In March, however, it sought Chapter 11 protection, wiping out equity holders (Willis Stein held 85.6%; DLJ Merchant Banking Partners, 14.4%). Four months later it quietly emerged from bankruptcy with a few assets for sale.
Vertis Inc.: The plight of long-ailing printing and advertising company Vertis Inc., running parallel to the analog world's perceptible shift to a digital universe, could have been radically different had a merger with rival American Color Graphics Inc. happened when initially weighed in March 1995. But inexplicably, the two largest printers, then Big Flower Press and Sullivan Communications Inc., respectively, called it off. Pity. That left both to cope with the industry's downward spiral, a challenge that Boston buyout shop Thomas H. Lee Partners LP, with Evercore Capital Partners LP, thought Baltimore's Vertis could address when they bankrolled a $1.9 billion recapitalization in December 1999. Instead it became a long debacle, as the printing industry became more competitive and commoditized, making a merger between the two look like a last gasp -- which it was. In 2007, Vertis called off another proposed merger with ACG, but then completed it through a prepackaged Chapter 11. The restructuring eliminated more than $1 billion in debt from their balance sheets, and gave creditors Avenue Capital Group and Goldman, Sachs & Co. majority control.
Hawaiian Telcom Communications Inc.: Soon after closing a $1.6 billion leveraged buyout by Carlyle Group in May 2005, things began to go awry for the phone network, putting a crimp on turnaround artist Stephen Cooper's vow to fix the system problems as Hawaiian Telcom Communications Inc.'s CEO. Within months, technological setbacks led to a deluge of complaints over faulty bills, service delays and regulatory scrutiny. As if that wasn't enough, the 125-year-old telecom faced rising local competition and leverage woes tied to its separation from parent Verizon Communications Inc. In December, the phone company, though still profitable, succumbed to Chapter 11, leaving Carlyle $430 million poorer and creditors to pick over the remains.
Washington Mutual Inc.: TPG Capital's bailout in April of the Seattle thrift ranks as private equity's single largest loss from the current financial crisis to date. It also serves as an abject reminder that even savvy investors, by coming in too early, can make gross miscalculations. Five months after TPG led a $7 billion equity injection in Washington Mutual Inc. at $8.75 per share, Kerry Killinger, WaMu's CEO for the past 18 years, was ejected, and WaMu's stock went into free fall, as the government was bailing out Freddie Mac and Fannie Mae. Other PE firms that looked at WaMu thought it needed 3 or 4 times the $7 billion infusion. TPG, which put up $2 billion, and the institutional investors who provided the balance, won protection against dilution if a second bailout became necessary. But it became clear soon after that a bigger rescue was needed. Regulators stepped in, and on Sept. 25, the country's largest thrift fell to J.P. Morgan Chase & Co. for $1.9 billion, wiping out $1.3 billion of TPG's outlay. Days later, the holding company filed for bankruptcy.