As Zell deals go, this hardly ranks among his biggest; he’s putting up a “mere” $250 million to gain control of a company with $5.5 billion in revenue last year. But what it lacks in economic heft, it more than makes up for in complexity. When the deal closes, probably at the end of the year, the Tribune Company will go from being a public company to a private S corporation, meaning it will pay no corporate taxes. Its sole owner will be an employee stock ownership plan, which is essentially a fund, owned by employees, which owns the company’s stock. ESOPs also pay no taxes, meaning that both the company and its owner will no longer be taxpayers. Mr. Zell, who will become chairman of the company, will immediately recoup his $250 million and then reinvest an additional $315 million (don’t ask). He’ll have an option to buy 40% of the company for another $500 million to $600 million. (If he does so, he will become the one taxpayer in the deal.)
The Tribune Company will be laden with debt, $13 billion in all, which it plans to pay down in part with the extra cash flow that is generated from not having to pay taxes. If the company does well — or even just decently — everyone will make out, starting with the employees whose stock in the ESOP will be worth a lot more than $28 a share, the discounted price the ESOP paid for it. But if it continues to sink — and just this week, the Tribune Company announced that May revenue fell 11.1% — then the company could wind up in default, which would hurt everyone, starting, again, with the employees, who would lose the value of their ESOP shares. …
What most seemed to excite him was the ESOP itself. And why not? As the Lehman Brothers tax expert Robert Willens said, “He is using it in a way that no one has ever done before.” Mostly, ESOPs are set up when family owners want to cash out of privately held companies and turn them over to their employees. Mr. Zell, by contrast, is using it to buy out the shareholders of a large public corporation —and turn it into a tax-free private company.
Spy Wars: Moles, Mysteries, and Deadly Games
A New Book Spy Wars: Moles, Mysteries, and Deadly Games”>by Tenant Bagley. A fascinating look at the Cold War battles between the CIA and KGB, among others. Bagley’s perspective is largely one of “counter-intelligence”. He includes some fascinating tales, including the Soviet’s use of plants and “false borders”. The book also provides an interesting look at Lenin, Trotsky and Stalin. Well worth reading.
Water Wars in the West
ight across the planet, good fresh water supplies are under pressure. In America’s West and Southwest, the combination of drought and booming population growth have made that pressure intense.
As the Colorado River and its giant reservoirs have shrunk, Arizona’s population has grown by 40 percent since 1990, and Las Vegas-area water use has doubled. California’s thirst for water is huge.
The trend lines show real trouble for desert cities. Global warming doesn’t help. And the West may be a lesson for us all.
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Committee for the Defense of Authentic Camembert
Each of the 400 nine-and-a-half-ounce rounds that he produces every day is stamped with the seal of “Appellation d’Origine Contrôlée” or “AOC” — a coveted certification that authenticates the content, method and origin of production of a French agricultural item.
But Camembert purists like Mr. Durand are infuriated these days because two of France’s largest dairy producers want to change the rules.
Citing health concerns, the two companies, Lactalis and the Isigny Sainte-Mère cooperative, which together made 90 percent of the traditional raw milk Camembert in Normandy, began earlier this year to treat the milk used for most of those cheeses.
In doing so, they were forced to sacrifice their A.O.C. status, the first time in French history that Camembert producers voluntarily did so.
But they also have asked the French governmental food board to grant that status to their new Camemberts, arguing that the processing they use — either filtering or gently heating the milk — does not sacrifice the traditional taste and character of the cheese.
Into Middle America (Wisconsin), but Staying on the Fringe
As Paul tinkered, his friends sat around drinking beer while heavy metal played on the radio. “This is your truest Wisconsin experience,” mIEKAL said, “hanging out in an auto garage in the middle of nowhere.”
Wisconsin, however, announced itself with no such subtlety. After a weekend in Chicago, I’d driven west across Illinois, finally turning north amid the big estates near Forreston. Once I was over the state line, hills swelled up from the prairie, the sweet smell of manure wafted from dairy farms, and advertisements urged me to indulge in Cheddar cheese and frozen custard, bratwurst and ButterBurgers.
By the time I drove through New Glarus — a surreal town modeled on a Swiss village complete with chalet-style buildings and street signs in German — I knew I hadn’t simply entered a new state, but a new state of mind.
As culturally distinct as Wisconsin is, I was heading for a place that sat at yet another remove from mainstream America: Dreamtime Village, an intentional community of artists situated in the driftless hills of southwest Wisconsin (so called because they escaped the rough, cold touch of ice age glaciers).
Once known as communes, until the word became overly associated with hippies and other cultural relics of the 1960s and ’70s, intentional communities have a long history in this country, going back to the Shakers and even, I suppose, the Pilgrims. I’d long wanted to visit one, to see how utopian ideals were surviving in the more cynical America of today, and so I logged on to www.ic.org and searched for intentional communities in Wisconsin and Iowa. At first, I found what I had expected: devout Christians, pagan farmers and a polyamorous “family” (my wife, Jean, vetoed that one). Almost all, however, wanted serious members, not casual visitors like me.
Roche Buys Madison’s NimbleGen Systems for $272.5M
Jeff Richgels summarizes the deal:
NimbleGen’s revenues have been growing strongly, from $4.5 million in 2004, to $9.5 million in 2005 and $13.5 million in 2006, but it has accumulated a total loss of $44.5 million as of the end of 2006, including losses of $8.3 million in 2004, $5.2 million in 2005 and $6.8 million in 2006, according to its IPO filing.
The company had raised $70 million in private funding and had $19 million in cash and cash equivalents as of Dec. 31, 2006.
A few interesting data points: $272.5M Sale price, $70M capitalization, 140 employees (850K to $1M monthly staff burn rate, maybe much more) and $19M cash and equivalents at the end of 2006. These numbers nicely illustrate the risks and potential upside of technology plays. While $272.5M is not a home run by VC standards (10X+), it’s a nice out for many, perhaps most (all?) investors. It would be interesting to find out if some of the capitalization included participating preferences.
The good news for Dane County? Some of that money will probably finds its way back into new startups.
Kathleen Gallagher has more.
The Next 10 Years: Focusing on Corruption
Lessig chooses an excellent new direction:
The bottom line: I have decided to shift my academic work, and soon, my activism, away from the issues that have consumed me for the last 10 years, towards a new set of issues. Why and what are explained in the extended entry below.
Three people I admire greatly are responsible for at least inspiring this decision.
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Yet governments continue to push ahead with this idiot idea — both Britain and Japan for example are considering extending existing terms. Why?
The answer is a kind of corruption of the political process. Or better, a “corruption” of the political process. I don’t mean corruption in the simple sense of bribery. I mean “corruption” in the sense that the system is so queered by the influence of money that it can’t even get an issue as simple and clear as term extension right. Politicians are starved for the resources concentrated interests can provide. In the US, listening to money is the only way to secure reelection. And so an economy of influence bends public policy away from sense, always to dollars.
The “Cashectomy” of AT&T
Cringely makes some useful points regarding the business relationship between Apple and AT&T:
What could AT&T be praying for? Plenty of things, but the most obvious theme I see is how to compete with Verizon, Comcast, and all the national cell phone providers. With Verizon, AT&T has to defend its decision to stick with a copper broadband infrastructure instead of the more expensive optical fiber Verizon has picked. With Comcast, AT&T has to defend its copper plant against Comcast’s copper plant, which is about to gain a LOT more bandwidth thanks to new modems using more advanced modulation techniques. And against the other mobile operators, AT&T has to defend its decision not to go full 3G with the iPhone.
Are you noticing a trend here? AT&T is facing a potential bandwidth crisis when it comes to customer perception and it is logical to assume that Apple helped create that crisis. After all, the iPhone could easily have been made to work with 3G. Since AT&T HAS a 3G network, the decision not to use it was probably complicated and some of that complication may have come from Steve Jobs saying, “We don’t need it. The iPhone will be insanely great with G2.5, thanks.”
AT&T clearly prefers to spend money on lobbying and advertising, rather than substance (fiber to the home).
Rory Stewart in Kabul
Stewart, who now heads a nongovernmental organization called the Turquoise Mountain Foundation (TMF), had come into Aziz’s good graces by way of his ongoing efforts to save the Old City from imminent destruction. One could be forgiven for assuming that, in Afghanistan, such a threat might be related to Taliban missiles or suicide bombers. But in counterintuitive fact, the culprit is a real estate boom. Everywhere in Kabul, bulldozers are flattening whole city blocks of traditional Afghan mud architecture to make room for modern glass-and-concrete buildings, fueled by billions of dollars in aid money and opium profits.
Stewart and I had spent the morning slogging through the mucky, trash-strewn lanes of the Old City, specifically a quarter called Murad Khane on the north bank of the Kabul River. Initially I had a hard time appreciating exactly what it is that’s worth saving. Murad Khane is a warren of boxy, flat-topped, one- and two-story mud buildings laced with winding passageways so packed with decades of uncollected garbage that street levels had risen seven feet (two meters) in some areas, forcing residents to contort themselves to enter their front doors. There was no plumbing, no sewage system, no electricity. Residents relieved themselves in the open. Loitering men smoked hashish.
Jack LaLanne Interview
An interesting video chat with the “godfather of fitness“.