CL employees to judge: What about us?
I have a hard time figuring out whether Ben Eason and closest circle of advisers are dishonest, or just plain nuts. Or both.
The fate of the Eason family’s 37-year-old newspaper chain now lies in the hands of a bankruptcy judge. After three recent days of testimony in Tampa over the issue of Creative Loafing Inc.’s value, Judge Caryl Delano said last night that she’ll rule within a week in a conference call on a motion to, in effect, turn the company over to a New York City hedge fund. At issue is whether CLI has gained or lost value since CEO Eason took the company into Chapter 11 protection on Sept. 29.
If Delano rules that Eason’s continuing to run the company aground while in bankruptcy, she may allow Atalaya Capital of New York to take control. If she finds he’s turning the ship around, she could permit him to continue operating CLI — for now.
It’s hard to imagine how anyone could arrive at the conclusion that the company hasn’t lost value since September. Atalaya’s valuation expert — a Deloitte heavyweight — testified last week that CLI’s value dropped from $19 million on Sept. 29 to $11.4 million on Dec. 31. A home-boy valuation expert (Tampa’s Michael Ward Mard) testified on Eason’s behalf Tuesday that CLI had nearly doubled in value since the bankruptcy filing (from $7 million in September to $13 million last month).
Home Boy’s valuation is difficult to square with the incredibly shrinking ad lineage at CLI’s seven six newspapers. The Atlanta operation, for example, which until recently had been the company’s cash cow, published a 56-page paper in February and has been running pretty consistently over the last three months at 64 pages. Page counts like that hadn’t been seen in Atlanta since the 1980s. In September, in fact, CL/Atl was publishing around 100 pages. Meanwhile, the Atlanta paper’s main competitor has been increasing its ad lineage — something it wasn’t doing before the CLI bankruptcy.
My understanding is that other newspapers in the chain have suffered similar shrinkage since the filing, though not quite as dramatically. Here’s an easy way to settle the debate: Just put a stack next to each other of all the papers from February of last year, September, December and this February. It will look like a stairway to the basement.
Never mind reality, though. Mard’s argument essentially is that the promise of online business growth — based on Eason’s most recent epiphany, which he calls the “Digital Transformation Strategy” — makes the company more valuable. A comment on Wayne Garcia’s latest post on the bankruptcy drama raises an important counterpoint, however. Eason has been cutting web personnel. As “Loaf Employee Says,” uhm, says:
Since the bankruptcy filing, Eason has gutted the tech personnel who handle/design the company’s websites. We [now] have a web staff of two. That’s two employees to design web pages, shoot and edit video, and maintain the blogs as well as trouble shoot the problems with our site that regularly come up.
I wonder if Eason was questioned about that. He claims the future of Creative Loafing is on the web. Yet after the bankruptcy filing he’s lost three web employees–having fired two of them. These are just the ones I know about.
Oh yeah, they were both fired on the day of our staff X-Mas party. Classy.
Here’s where I disclose (in case you haven’t noticed) that my perspective on this drama isn’t exactly objective. Eason fired me as the Atlanta newspaper’s longtime editor in November after I urged him to spread his cuts more evenly — to, for a change, include his Corporate and administrative staffs in his cuts and to temper his plans to deepen reductions in front-line departments, such as Editorial and Sales. I should have spoken up for the Online Department as well, but had no idea that it, too, would be cut before Ben cut his bureaucracy.
The notion that Eason’s latest eccentric vision — the “Digital Transformation Strategy” — should be considered a silver bullet toward success serves as a kind of deja vu for CL employees. It’s consistent with the regrettable approach that’s gotten the company where it is today. Grand visions — replete with bells and whistles, whirly-gigs, Rube Goldberg machines, and consultants (Lord knows, plenty of consultants) — are favored over hard-headed, real-world, in-the-trenches work and over the organizational support that journalists, technologists and salespeople need to keep a media company growing in today’s tough environment.
As long as Eason controls the company, there is no reason to believe this dysfunction will end. Even if you don’t believe that, the prospect of Eason continuing to control the company is worrisome: If Delano rules in Eason’s favor, Atalaya will not go away. CLI will continue to be hampered by the expense of the bankruptcy attorneys and financial consultants it will need to ward off the creditor’s push to gain control. In this business environment, a small firm with weak leadership can’t afford such a financial distraction. It’s a recipe for cycling downward.
The only silver lining is that Eason’s mis-leadership must now be focused on the bankruptcy case rather than on constantly amending his vision and placing unreasonable expectations on his employees.
I’m told that the Eason family has come together to show support for the business that Ben’s mom, Debby, founded in 1972. They sit in court behind Ben and his attorney, surely (and understandably) worried that the family sits on the brink of losing her legacy and the family fortune. It’s good that they’re supporting each other through this. It really is.
There are other people, however, who are unable to view the hearings or to speak openly about the company’s future. As blog posts and comments from Chicago to Tampa testify, the vast bulk of those people would sit on the Atalaya side of the courtroom. They are the CLI employees whose sweat, intelligence and creativity really built each of the chain’s respective papers. Do their life’s work and their financial security — so long under-appreciated by Ben and his revolving-door of executives — not matter at least as much as the aspirations of one family?
Bulkley not new to CL
Turns out that the financial services company that Creative Loafing Inc.’s lead creditor plans to turn to if it gains control of the troubled alt-weekly company has had some dealings with CL before: Bulkley Capital shepherded the 2007 sale of the Chicago Reader and the Washington City Paper to Creative Loafing Inc.
According to Bulkley’s website:
Bulkley Capital was called upon by two of the country’s leading alternative weekly newspapers, the Chicago Reader and the Washington City Paper, to represent them through final negotiations and due diligence in their sale to Creative Loafing, Inc., owner of alternative weeklies in Atlanta, Tampa, Sarasota and Charlotte.
Tom Yoder, one of the owner of the Reader and the City Paper, is featured in a testimonial on the Bulkley website lauding the company for its discrete handling of the deal: “Bulkley Capital was extremely useful in advising us, keeping the deal on track and sheperding it through to a sale. It was completely top-secret. And we ended up astonished that word never got out – astonished and delighted.”
The 2007 transaction didn’t turn out to be as good for Creative Loafing as it was for the 11 former owners of the Reader and the City Paper. CLI CEO Ben Eason borrowed $40 million to buy the two altweeklies and to retire a existing $16 million debt. On Sept. 29, 2008, when he was about to be held in default because he couldn’t make scheduled payments, Eason took the company into Chapter 11 bankruptcy protection. For the time being, that’s prevented Atalaya Capital, an investment fund, from taking control.
Today, in a hearing that could determine whether Eason must finally turn the company over to Atalaya, an Atalaya official announced that the investement fund had contracted with Bulkley Capital to help manage CLI. At the same time, as its own description of the Reader/City Paper deal makes clear, Bulkley has a track record of arranging sales:
The owners were seeking a buyer with a proven track record and a clear plan for taking the papers to the next level, while maintaining the strong culture and commitment to quality they had established for their readers and employees. Bulkley Capital worked alongside the shareholders to evaluate the buyer’s operations and plans for integration. Despite a challenging environment in the publishing industry, which has seen increased competition and a decline in readership and advertisers, Bulkley Capital succeeded in negotiating and consummating a complex transaction that achieved the economic and structural goals of the selling shareholders, including separate treatment of and added value for the real estate holdings.
The usual disclosure: I’m the former editor of Creative Loafing/Atlanta. Eason fired me in November after I suggested that he cut his corporate and administrative expenses before continuing to cut Sales and Editorial.
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