From Al to Avista

In 1982 I wrote the “good-bye” story for the old Minneapolis Star when it ceased publication and was folded into the morning Tribune. Mike Finney, the gentlemanly and thoughtful managing editor at the time, asked me to do the story, he said, “because everyone else around here is a mess.”

What he didn’t know was that I was in the same shape — in shock, but more in mourning.  To prove that, I remember listening to then-editor Steve Isaacs give his “we’re being folded into the Tribune, our arch-enemy, speech,” and being asked, “Did you get that?” by my friend Bob Ostmann, the metro editor.  I turned to him with a blank and embarrassed stare and said, “No.” I had completely forgotten to take notes.

It didn’t matter. And it shouldn’t have mattered, because that speech was for us, the Minneapolis Star family. We had experienced a death — our voice, our cause, which had been to do something bold and different. I had lived that cause with a desperate passion for the two years I had worked there.

So it is with a similar sense of mourning that I read to day that the Star Tribune is filing for Chapter 11. We all knew the patient was very, very ill. That’s been obvious for so long now. No, it’s not a death, but it is a form of cancer: disruptive, debilitating, weakening. Will the operation work? Maybe; maybe not.  But in the end, something surely will be lost. The body will be weaker. Scars. Long rehabilitation. Maybe worse.

But these are our times. Which brings us to Al — that’d be Al Checci. Al did exactly to Northwest Airlines what the Avista people, and before them, McClatchy, did to the Strib: leveraged a high fixed-cost business.  Look at what that bought us with Northwest Airlines:  First, a bankruptcy, now a merger with Delta.  He took an unleveraged, profitable airline — potentially a Minnesota version of a Southwest Airlines — and ruined it, depriving our community of thousands of jobs and a strong, healthy Fortune 500 enterprise.

It’s the number one Don’t in business. Whether it’s airplanes, coupled with the high variable cost of fuel, union contracts and the high level of economic sensitivity, or printing presses, a big fleet of delivery trucks and union labor, you don’t borrow big money to buy those types of assets.

The variables are just too unpredictable and the fixed costs too high to pile up a bunch of debt against them. To be sure, the Strib was cash flowing like a banchee when Avista bellied up to the table, but interest rates were also at an historic low, the economy was humming, and the private equity money flooding in to firms like Avista, looking for a home.  So it made sense — sort of — for Avista to have taken a hard look at the Strib.  After all, they were taking it off McClatchy’s hands for roughly half what McClatchy had paid for the property.  Times were good; the business was performing.

But shoot:  What about that pesky internet? Craig’s List? Oil prices (delivery costs, ink)?  Inflation? Didn’t these guys model for that? Really? Didn’t Checci model to cover the financing costs of hundreds of leased jets should business slow down? Oil prices increase? Recession slow down the economy?  Or didn’t they even care?  I strongly suspect the latter; I really do.

So now, thanks to leverage — a fancy word for a Jumbo Mortgage — we have sickened another one of our key community; nay CIVIC, resources. Again, a bunch of people playing with Other Peoples’ Money in a strong economy where risk premiums had been cut to nothing, prompting ever-more risk-taking for ever-lower returns.  Now we, as a community, get to reap the benefits: Fewer reporters, smaller newsholes, fewer high-paying jobs, potentially less government oversight, less coverage of the arts, our community, our culture.

Swell. Just swell.

Okay Vance: It’s time to step up to the plate.  Bring Our Paper home.

Better Than Dangerous

So now that Michele Bachmann has (again) bitten her foot off on national television, all attention turns to the momentum building behind the campaign of Elwin Tinklenberg, her DFL rival.  I think that’s wonderful.  I really do.

But given the fact that Mr. Tinklenberg, a former Methodist minister and mayor of Blaine (with no engineering background) is positioning himself as a transportation expert, I have to marvel at the lack of serious examination behind his almost-four-year term as head of the Minnesota Department of Transportation, from 1998 until 2002, under Wrestler Entertainer and more-or-less Governor Jesse V.

About the only “journalist” doing anything extensive on Mr. Tinklenberg’s background is a fellow who calls himself “Blue Man,” writing from Wright County on his blog, “Blue Man in a Red District.”  He is to be applauded.

Let me say this again:  I think it’s wonderful that Mr. Tinklenberg is putting up a serious challenge to Ms. Bachmann, an individual who seems to present a dangerous impediment to the notion of an enlightened representative democracy.  If I were in his district, I’d vote for him.

Having said all that, it’s important to note that Mr. Tinklenberg brings with him a clearly mixed track record as a “transportation expert.”  It is one dotted by not one, not two, but three consecutive years (2000, 2001 and 2002) years of legislative auditor reports criticizing the operating practices of his department on everything from environmental practices to financial record-keeping (http://buildourparty.blogspot.com/2008/02/legislative-auditor-on-transportation.html), but also whose department demonstrated a notable capacity to skirt competitive bidding regulations to ensure that state taxpayers received the best deal in a process that allowed contractors to compete in an open marketplace (http://www.nashtu.us/Jan21StarTribune.htm).

I have some personal experience with the latter reference.  I happened to be a member of the Minnesota News Council in 2003, when Mr. Tinklenberg brought a case before the Council complaining that the above-referenced investigative story by the Star Tribune was unfair and unbalanced, among other things.  In holding in favor of the Strib, the Council ultimately ruled in a lopsided series of decisions (http://news-council.org/2002/04/22/determination-133-minnesota-department-of-transportation-v-star-tribune/) that the Star Tribune was fully justified in its reportage; I fully agreed with the Council’s assessment. 

During that hearing, in his defense of MnDOT’s operating practices, Mr. Tinklenberg made the astonishing statement that he viewed the contractors with whom the state worked as “his constituents.” I couldn’t resist noting at that hearing that it would seem to me that the citizens of the state of Minnesota were his real constituents, given that it was their money he was spending.  I don’t think I’ll ever forget that.

So let’s all hope that Mr. Tinklenberg wins this election.  Seriously.  But let’s also hope that the media keeps an eye on him, and that he never loses sight of who he’s working for. invoicing software nice

Par for the course

For some of the best — and most disturbing — local writing to be found these days, follow this link:  http://media.startribune.com/smedia/2007/04/12/21/pplawsuit.source.prod_affiliate.2.pdf

 This should take you to a PDF copy of the lawsuit filed by the Pioneer Press April 12 against The Star Tribune, Newspaper of the Western Milky Way and Leveraged Buyout Mistress of Avista Capital Partners, LP.  It represents the opening salvo in the battle over Par Ridder’s thoughtful decision to remain on Interstate 94 on his way to work from Sunfish Lake, exiting on 5th Street in Minneapolis rather than 7th Street in St. Paul, thereby leaving his job as publisher of the PP to take the comparable position at the Strib.

Now of course, kiddies, we all learned in school that a lawsuit is a “claim,” and not to be believed as fact.  It’s one side of the story.  To be sure.  But if just a fraction of the allegations laid out in a compelling narrative — drafted by one Dan Oberdorfer, former Strib-reporter-turned-lawyer — that is both detailed and genuinely disturbing, are true, then what we have here is a real corker. 

In short, the suit describes a series of actions by a spoiled little MBA rich kid who decided to turn his back on 75 years of history and loyalty to both a newspaper and a company — the Pioneer Press and Knight-Ridder, respectively — and to trot across the River to that company’s arch-competitor, taking with him a mountain of highly sensitive information, the substance of which is enough to blow a competitive hole in the side of the PP the size of the USS Cole.  And this doesn’t even touch on the fact that there appears to have been some sort of inconvenient “non-compete” agreement that Mr. Ridder (whose name Channel 9 news amusingly pronounced as “Rider,” as in Easy Rider) either inappropriately removed from the premises of the Pioneer Press, mischaracterized as being null and void, or both.  Oh, and did we mention that Par also persuaded two critically important PP executives to join him?

Perhaps most disturbing in all this is the very real possibility that The Star Trombone’s best and brightest executives gleefully accepted all this information, with Par “Easy” Ridder firing off one email after another bristling with attachments of spreadsheets, reports and other goodies — machine gun belts of business amunition for the Strib to fire against its cross-town rival.  This, in an industry whose stock-in-trade every so often lights upon such subjects as credibility, accountability and, ah, ethical behavior, is utterly amazing.

To read the Strib’s coverage of the issue is to witness one of those VERY CAREFULLY edited bodies of reportage that characterizes the dispute in the most antiseptic of terms. (Those of you who haven’t been on “the light side” — versus the dark side of PR — should be aware that any story that even mentions The Mothership is given extremely careful treatment, frequently being read and edited by the Editor-In-Chief, the company’s lawyers and any number of other Poobahs — consideration usually reserved only for BFD Superprojects.) 

We would also invite you to visit the Strib’s web site and to search for “Ridder,” whereupon one will be rewarded with 79 hits.  One of those headlines, dated April 17, 2007, reads:  “Star Tribune Union Seeks Inquiry of Allegations Against Publisher.”  Interestingly, a click on that particular headline results in an Error 404.  “We’re Sorry.  The page you requested could not be found. It may have been moved; more likely it has been removed from our servers. Most articles are automatically purged from startribune.com’s free news database after three weeks.”  Hmm.  Let’s see.  Today’s April 18th, I think. . .

Not that any of you care, but for some demented reason (maybe it’s because my family just visited my profligate artist son, who is studying for a semester in Florence, Italy), I’ve been reading Dante’s Inferno.  I would note the following:  Dante reserves his lowest and most horrifying level of hell, Judecca (for Judas), the innermost region of the Ninth Circle, for those who commit treachery against their benefactors.  One would assume that those who receive the fruits of that treachery are somewhere in close proximity. 

— Tony Carideo

U.S. Bancorp — shame on you!

Choice.  Just choice.

A bit old, but let us today linger for a moment on a story printed in the Pioneer Press on February 28 by banking and finance reporter Nicole Garrison-Sprenger, noting the fact that the “short interest” in the stock of U.S. Bancorp had nearly doubled between mid-January and mid-February — to 37.5 million  from 20.9 million.  It was the third-biggest change in shares in the period, according to Barron’s.

Wow, what a horrible thing!  All these people — the Darth Vaders of the investment world — betting that the stock of the company was going to drop.  (A short sale is a bet that a stock is somehow overvalued. To profit on such a trade, the short seller borrows the stock from a broker on behalf of an investor, then sells the borrowed stock in the open market at the current price.  The idea is to return the borrowed stock to the broker down the road by buying the stock at, it is to be hoped, a lower price, pocketing the difference as a profit.)

One would have thought that the market believed the world was going to collapse any SECOND for this company.  And the company reinforced it: U.S. Bancorp “did not offer anyone who could comment” on the situtation.  Absolutely incredible.  Why?

Well, back in December of 2005, U.S. Bancorp issued $2 billion in convertible debt.  At the time, the company’s common stock was trading at just under $31 a share.  The “strike price” of the convertible:  $36.85 a share, meaning that the holders of the bonds have the right to convert the bonds into common stock once the stock reaches $36.85.  Thus, when the converts were issued, they were more than $5 a share “out of the money.”

Fast forward to February, 2007.  U.S. Bancorp (NYSE: USB) stock is on a tear, trading to a 52-week high of — you guessed it — $36.85 a share.  How about that. 

Welcome to the world of hedge funds — pools of loosely regulated private funds that pursue a wide variety of strategies, including the shorting of stocks.

The last figure I saw put the number of hedge funds at 8,600, with well over $1 trillion of assets under management.  An even more important statistic is this:  more than 120 hedge funds are focused on (surprise):  convertible bond arbitrage.  The idea of convertible bond arbitrage is that the investor buys the convertible bonds of a company and sells short the common stock of the company.  This strategy — it’s called a delta hedge, but we won’t get into that — becomes especially relevant when the convertible bond is trading near its strike price.

What’s interesting about this is that the bet here isn’t necessarily on the common stock falling, but rather on the potential for high VOLATILITY in the underlying shares and convertible bonds.  That’s because, based on the hedge ratio used by the manager, the arb can profit from movements in either the convertible bonds or the common stock.

The point here is this:  U.S. Bancorp could have defused this whole story by explaining this to the reporter.  The short interest had less to do with a negative bet on the company’s future, but on a complex trading strategy that had more to do with the potential for volatility in the stock.

Shame on you, U.S. Bancorp.  Dumb. Dumb. Dumb.