Cash Poor: Tribune Sells 10% Of CareerBuilder To Gannett

careerbuilder screenshot of homepage In desperate need of cash to pay down its debt, the Tribune Co. has sold a 10% stake in CareerBuilder to Gannett for $135 million, increasing Gannett's share to 50.8% and Tribune's share to 30.8%. The deal gives Gannett three seats on McClatchy's CareerBuilder board versus one for Gannett and one for McClatchy, which owns a 14.4% stake. (A fourth partner, Microsoft, owns 4% of the company.)

The deal will also give Gannett a larger share of CareerBuilder's revenues, but in the near term, it's probably no great loss for Tribune. While the partners are cagey about CareerBuilder's revenues, McClatchy revealed that its online employment revenues plummeted 27.3% in the second quarter compared to the same period last year, to $16.7 million. Tribune said total online classified revenues fell 4%.

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Gannett's CFO Gracia C. Martore said that during the second quarter, "domestic publishing online revenues increased about 3% as double-digit growth in the auto and retail categories was offset by the real estate and employment categories."

(Also on Wednesday, Tribune announced a shakeup in its digital business. Tribune Interactive's president Mark Chase promoted Rob Barrett to executive vice president of programming in Los Angeles, and also appointed Julie Anderson to vice president for content integration. Chase had formerly been senior vice president in LA, while Anderson was vice president for interactive in Orlando.)

It seems likely that CareerBuilder's difficulties simply reflect the cyclical slowdown in the American economy, meaning revenues should rebound when the economy improves. However, Tribune's new owner, Sam Zell, has a far more pressing concern: the $7.4 billion debt remaining from the deal he engineered to take Tribune private as an employee-owned business.

Tribune was able to make a scheduled $809 million payment due at the beginning of August, but another payment of $593 million looms in June 2009. The company could also be found to be in default if its operating cash flow falls below a certain point.

During the second quarter, Tribune said operating cash flow declined 2% to $221 million. This follows a 16% decrease in first-quarter operating cash flow, to $200 million. These figures are important because, per the terms of its debt agreements, Tribune must maintain a ratio of debt to operating cash flow of no more than 9-to-1, based on the present and three previous quarters. If the ratio climbs above 9-to-1, the company could be declared to be in default by lenders.

In August, a report from Fitch Ratings expressed skepticism "about the company's ability to generate cash to meet its interest payments, principal amortization and maturities under its debt obligations in a timely manner," adding that it will be "challenged to generate meaningful and consistent revenue growth."

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