Tribune near sale -- finally

The slow-motion aution of the Tribune Company seems to be nearing completion after six months -- a process that has probably cost shareholders hundreds of millions.

Tribune Co., owner of the Los Angeles Times and Chicago Cubs, will probably accept real estate billionaire Sam Zell's $8 billion takeover offer by the end of the week, according to people familiar with the matter.

An agreement is likely by Tribune's self-imposed deadline of March 31, said the people, who declined to be named because no decision has been made. Zell's offer of $33 a share is 6.8 percent above yesterday's close.

Zell's offer was competing with the company's plan to reorganize, as well as less-attractive bids from the company's largest shareholder, the Chandler family, and California billionaires Ron Burkle and Eli Broad. The auction dragged on for six months amid waning interest from buyers and an 8.4 percent drop in the stock.

"Shareholders have to be frustrated that this has gone on while the share price has declined,'' said James Peters, an equity analyst at Standard & Poor's in New York. He rates the stock "hold'' and doesn't own it. "The price being discussed reflects that fact that the company is in a declining revenue environment.''

That "declining revenue environment" comment refers to the fact that Tribune reported this week that "newspaper advertising fell 5.1 percent in February to $233 million, led by a 13 percent drop in classifieds."

Zell will apparently not break up the company -- one of the other options being considered.

Update: This one isn't over yet. Now some LA billionaires have submitted last-minute bids.

The Burkle and Broad bid includes $500 million in cash and would use an employee stock ownership plan to aid the recapitalization, the person said. It is believed that Zell was proposing to invest $300 million.

But with little else known about the offers, it was unclear whether Tribune's board, which met Thursday, would consider the latest bid or even extend its deadline.

The deadline was supposed to be 3/31, but that's past, with no word.

Updated update: Looks like Zell won. Anybody wanna buy the Cubs?

Foot Locker buying Genesco?

Women's Wear Daily says that Foot Locker, which has close to 4,000 stores is planning to pick up another 1,700 or so by buying Genesco.

Genesco has a bunch of shoe stores, including Journeys and Johnston & Murphy, but apparently the main interest for Foot Locker is the hat business.

Foot Locker has previously said it would open a chain of athletic hat stores called "Champs Sports Just Hats" to try to take market share from Genesco's Hat World chain. At the time, an analyst said the hat business had operating profit margins of 12 percent to 13 percent, higher than the average for specialty retail.

Happy birthday, ACB

The Advertising Checking Bureau is celebrating this month the 90th anniversary of its founding. It was founded in 1917 as a service to provide newspaper tearsheets to advertising agencies as proof that their clients' ads ran; they created the co-op auditing business thirty years or so later.

"We are proud of our long standing heritage and the accomplishments of the company over the past 90 years, especially in an industry where consolidations are prevalent and corporate resilience remains unique. The cornerstone of our success rests on the provision of excellent customer service in a challenging and highly competitive business community." said Brian McShane, President ...

I worked there for several years, but don't hold that against them; they shook off that mistake and have prospered since. Among their more distinguished alumni are Rob Hand, who went on to start up a competitive service, Medianet (now TradeOne), and now is with Oracle; Steve Isaacs, who also founded a competitor, CCI; and Art Fiordaliso, now CEO of a third competitive firm, AAS.

Ninety years -- it's good to know there's something older than me.

Free dailies add to newspaper woes

As if things weren't ugly enough for metro dailies, more free daily papers appear to be on the way.

It’s already started in Europe. It's about to arrive in the U.S. It's what's fast becoming a global war between traditional paid newspapers and the hordes of free dailies sprouting up in cities worldwide.

It's an ugly fight, and it threatens to transform American newspaper publishing when it arrives.

Imagine a typical newspaper market in America, with one or two paid dailies and perhaps a subway freebie. Now imagine a handful of free papers joining the scramble to win readers and advertisers.

There already are free dailies in several big cities, including a whole chain of Examiners (SF, Baltimore, Washington, with more planned). Now an Icelandic media company is opening a Boston paper, with plans to expand, and not just in the biggest markets.

But they will surely come. "The prognosis is that there will be more free dailies in America-- whether through the Examiner (delivered to homes) model, or through the street/hawker/pick-up model (Quick - Dallas, Red Eye - Chicago, Express - Washington), or via hybrid distribution in smaller markets. The trend to free is inevitable."

What's less clear is who will survive and who not when the shakeout comes.

It's a market that is already fragmented, facing declining usage, and with signicant (and growing) competition for customers' time and attention. For retailers and manufacturers offering trade promo money to retailers, the question has to be: How can we reach a mass market through advertising, when the media keep slicing the market thinner and thinner?

Cadbury to split up

Cadbury Schweppes is going to cut itself in two, breaking off the confectionary and beverage units.

The company intends to spin off its Plano-based U.S. beverages arm, which makes products including Snapple and Dr Pepper, from the rest of Cadbury. That would leave its confectionery business, which has products such as Dairy Milk chocolate and Trident Gum.

Cadbury said it was still evaluating the options for the split and would provide further information in a trading update due in mid-June.

The company is apparently giving into pressure from one of its new investors, Nelson Peltz. The Dallas Morning News speculates that the beverage division, if sold off, could bring in as much as $14 billion.

In-store displays are killing the book section

The Los Angeles Times is planning to kill off its Sunday book review section, according to the Wall Street Journal, joining a trend:

Sometime this spring, the Los Angeles Times is expected to announce that it is folding its highly esteemed Sunday book review into a new section that will combine books with opinion pieces. That would reduce to five the number of separate book-review sections in major metropolitan newspapers still published nationwide, down from an estimated 10 to 12 a decade ago. The reason: not enough ads.

Book publishers in recent years have moved away from buying ads in standalone book-review sections in favor of paying to stack mounds of books in the front of chain bookstores. Some small literary publications, such as the New York Review of Books, are showing growth, but the book review as a separate section is endangered not only at the Los Angeles Times but at other major newspapers like the Washington Post, Chicago Tribune, San Francisco Chronicle and San Diego Union-Tribune.

The trend toward in-store is, of course, not unique to the book biz, as we all know.

In an era of targeted marketing, publishers say the best time to reach readers is when they are in the stores with money in their pockets looking to make an immediate purchase. But with a sea of titles in the stores ... the only way for publishers to stand out is to pay for real estate in the front and pile those books up high.

"You want to see your books in prominent places," says Tom Perry, associate publisher of Bertelsmann AG's Random House Publishing Group. "Such co-op advertising is where marketing dollars are going that might otherwise have been spent on advertising." ...

One publisher says that chain bookstores can charge $1 or more per book to stack titles in desirable locations, such as on a table at the entrance or in a display featuring new nonfiction titles.

This is one of those items where we see the confluence of so many trends -- media fragmentation and the death of newspapers, retail consolidation, the increase in in-store merchandising, and the spread of CPG marketing tactics to consumer durables.

Tuesday Quick Notes

Dollar General was bought by private equity firm KKR. Seems to be a lot of private equity action in retail; my knowledge of finance is minimal (or less), so I won't bother to speculate on why, I just note the fact. The price is $6.9bil.

Carrefour's chairman resigned in an apparent rift with the company's leading family. Coincidentally or not, at the same time it was announced that a private equity firm (is there a pattern here?) had also bought a large stake.

Payless Shoesource bought one of their private-label suppliers, "Collective Licensing International, which owns the Airwalk brand of shoes sold exclusively in Payless stores since 2003."

I nailed it!

Okay, I didn't nail it exactly, but I was close.

Over a year ago, in this post, I speculated that Wal-Mart could carry their private labeling of music to the point of establishing their own record label:

The question is, could Wal-Mart apply the concept of private label to music -- could they, in short, become a label themselves? And the answer is -- you bet they could! In fact, some estimates are that, in country music at least, Wal-Mart accounts for 50% of sales.

I nailed the concept, but I had the wrong party. According to this article, Starbucks has decided to establish their own record label:

Having already proven that it can sell other companies' music, coffee giant Starbucks is planning to launch its own record label and is close to a deal for the next album from former Beatle Sir Paul McCartney to be its first release, according to sources familiar with the plans.

The formation of Starbucks Records, as the unit is expected to be called, could be announced as soon as this week, according to these sources.

So who's next? I still think Wal-Mart, with their 50% market share of country, but Target and Best Buy seem like good options as well. The times they are a-changin'.

States getting fed up with rebates

Most of the action to regulate rebates has been done by the Federal Trade Commission, but a few states have enacted their own rules. The most recent to join the parade (if pending bills are enacted) are Florida and Georgia.

A bill filed in the Florida Legislature would give companies 15 working days to make good on a rebate after getting the request from a consumer. In the Georgia General Assembly, a similar bill would allow 30 days from the date a mail-in request is postmarked.

Fifteen days would be a real strain for many manufacturers and their program administrators.

"There are a lot of people who apply for a rebate and eight weeks, 10 weeks, 12 weeks go by," said Russell Cyphers, legislative assistant to Florida state Sen. Bill Posey, R-Rockledge.

Posey's bill said if the company needs more information to fulfill the request, the rebate offerer must tell the consumer by certified mail within three days about what's lacking. Cyphers said that puts the onus on the company instead of forcing consumers to follow up with time-consuming inquiries.

I think this bill probably goes too far, but it's hard to work up a lot of sympathy for a business that has created so much ill-will -- the many manufacturers who sit on claims for months for cash-flow reasons have created a backlash.

If too many states enact conflicting regulations, it will make things extremely difficult for manufacturers trying to offer rebates -- especially through national retailers.

Oxley says, "I'm sorry"

Well, sorta. From The Australian: "National Institute of Accountants general manager Andrew Conway said Mr Oxley's comments amounted to an apology of sorts for the draconian law."

So what did the co-author of Sarbanes-Oxley say? At a gathering of accountants in Paris, reported in the International Herald Tribune, he acknowledged that the law went too far, excusing the excess by noting that ""it was not normal times."

Was Oxley aware, his questioners asked, that the law that he and Senator Paul Sarbanes, a Maryland Democrat, rushed onto the books five years ago after the collapse of Enron and WorldCom had contributed to a sharp decline in listings on U.S. stock exchanges? And, knowing what he knows now about the cost and effects of the law, would Oxley — who retired in January after 25 years in Congress — have done it any differently?

"Absolutely," Oxley answered. "Frankly, I would have written it differently, and he would have written it differently," he added, referring to Sarbanes. "But it was not normal times."

He also laid the blame for Section 404 on Sarbanes.

At the same time, Sarbanes was pushing through an even tougher version of the bill in the Senate, adding a requirement that companies conduct internal and external audits of their financial controls. That measure, known as Section 404, rang alarm bells among U.S. companies and foreign ones that feared it would exact punitive costs for good governance.

Oxley said he felt at the time that Section 404 could spell trouble.

He's also less than impressed with the board his bill created, the PCAOB:

One reaction, he said, was that auditing entered a period of extremely conservative practice, encouraged by rulings from the Public Company Accounting Oversight Board, a new regulatory body created by Sarbanes-Oxley. The board gave the accounting industry "almost carte blanche to do almost everything they wanted to do, which turned out to be far more expensive than anticipated," Oxley said. "They just went crazy."

Now we can wait to hear Sarbanes' side of the story.

TPMA to form Durables Council

I just got off the phone with Mike Kantor of Trade Promotion Management Associates, discussing a host of issues. Mike mentioned that today is his one-year anniversary with TPMA (congratulations, Mike), and that started us discussing how very far the group has come in that time, and what further opportunities for growth and service to the industry still exist.

We were in full agreement that everyone will benefit if TPMA has greater participation from the consumer durables and business-to-business sectors. CPG, durables and B2B all have much to offer in terms of differing approaches to trade promo and they also have much to learn from each other. The growing convergence of the sectors means they need to share ideas. Everybody will benefit if TPMA provides the forum in which each group can both address the topics specific to their sector and share ideas across sectors.

The upshot of the conversation was a decision to form a Durables Council to address ways to increase participation among durables companies, and to solicit input on the issues such companies want to see addressed.

As the idea develops, I'll be posting more here and in TPM Update. In the meantime, if you'd like to be a part of the Council or just want to share your ideas on what needs to be done, please contact me.

We'll keep you informed on developments.

More private label music

I've posted several times before (here and here, for example) on the subject of music going private label -- a phenomenon that once would have seemed impossible.

Private label began, after all, in commodity categories, and few things are less commoditized than music. It's easy to substitute generic creamed corn for the branded product, but less so one singer for another.

And yet, it seems that a form of private label -- exclusive distribution deals -- is increasingly hot in the music biz.

USA Today reports here on several such deals:

As national music chains dwindle, big-box retailers such as Target and Wal-Mart are taking cues from Starbucks and iTunes by adding more exclusive music to their shelves. Target's new Spotlight Music Series offers 15 discs, including new adult-contemporary music, genre compilations and mixes handpicked by Avril Lavigne, Jason Mraz, Dave Matthews and others.

This is the first article I've seen, by the way, that references the private label analogy:

"It's private branding," says Christman. "How many companies make their own cereal for a supermarket chain? How many companies make their own detergents for a discount retailer? That's a set retail strategy."

You read it here first.

Oracle buys Hyperion

Oracle is continuing their recent imitation of a teenager let loose at the mall with the family credit cards, this time adding Hyperion to the overflowing shopping bag.

AMR's weekly newsletter suggests that this will be the first of a series of purchases of business intelligence companies. Their list: "IBM-Cognos, SAP-Business Objects, and HP-Teradata, for starters."

HP goes CPG

Hewlett-Packard is employing tactics from the world of consumer packaged goods, demonstrating once again something I (and others) have been noting for a while – the growing convergence of the two wings of trade promotion in consumer products, CPG and consumer durables.

BusinessWeek reported recently that HP is making payments to retailers to get them to stop selling private label cartridges for HP printers:

Those executives say the company has approached chain stores that sell store-brand cartridges compatible with its printers and offered them incentives if they end the practice.

Staples is offered as an example. The article goes on to raise questions about the legality of the practice, which is of interest, of course. But I was more struck by how HP, an iconic company in the high-tech arena, is using a marketing tactic more identified with the selling of canned peas.

The fact is that the convergence I spoke of is one-sided – trade promotion practices among consumer durables companies are emulating CPG. And the reason is the one that drives almost all practices – the nature of the channel. As more durables products are driven through big-box retailers (and even B2B products, in many cases), trade promotion programs must be modified to meet the needs and demands of the retailers, and, in this case, to allow the manufacturer to charge a premium price for their branded product. If it works for Del Monte at Kroger in charging an extra fifteen cents for canned peas, it should work for HP at Staples in pricing the ink cartridges a couple bucks higher.

The case also demonstrates how a product can morph in terms of its category. Are ink cartridges a B2B product, or a consumer durable, or CPG? The answer, I suspect, is yes and yes and yes, demonstrating the difficulty of developing channel programs today, and demonstrating the need to constantly re-evaluate the nature of your product.

Is the SEC about to give TPM outsourcing a helping hand?

Could be. At the recent TPMA meeting in St. Petersburg (it was not fun going home to eight inches of snow in Chicago), I made a presentation on benefits to be gained from Sarbanes-Oxley (it was an extended version of this post).

One of my points was that creating Sarbox-compliant trade promotion processes should make it much easier to outsource management of trade promotion – thus eliminating a messy, paperwork-intensive task that is not part of a marketer’s core business. A good argument, I thought.

At the very next session I attended, however, I got a jolt – a much better argument is coming. Ron Lunde was presenting on changes to be made in Sarbox, and said that among proposals being made by the PCAOB is one that one allow outside auditors to rely on data from responsible outside sources.

This could mean (if adopted by the Securities & Exchange Commission) that a company’s auditors might not have to perform audits on work performed by an outside supplier.

… the Board also proposed for public comment a new auditing standard on considering and using the work performed by internal auditors, management and others in an integrated audit of financial statements and internal control, or in an audit of financial statements only. This proposed standard is intended to further clarify how and to what extent an independent auditor may use that work to reduce the work the auditor otherwise would have to perform.

The full report is here.

The effect of this, if a conversation on the subject among the attendees at Ron’s presentation works out, is that a company would not need to have their trade promotion program audited by their Big Four audit firm, if the systems, processes, and practices of that program could be attested to by a responsible, reliable party. While that might be someone internal, it is more likely to be credible if it were an outside party with a SAS-70 certification.

The TPM outsourcing companies currently argue that their costs are not much higher than doing the work internally (actually, they often argue that it’s cheaper, but I’ve never really bought that argument), but if a potential client could also significantly reduce the cost of their annual audit by eliminating trade promotion from the items to by audited, the outsource firms would have a powerful new argument.

The period for comment on the proposed changes has just expired, so we can expect an update on this subject in the next few months.

FTC holding "Rebate Debate"

The Federal Trade Commission is holding a workshop on rebates in San Francisco on April 27.

For many years, manufacturers and retailers have used mail-in rebates as a marketing tool. Despite their popularity, however, many consumers have had negative experiences with rebates, and have begun to distrust them. Moreover, some businesses are beginning to question whether the costs associated with rebates exceed their benefits.

At this public forum, manufacturers, retailers, fulfillment houses, consumers, and government officials will discuss how to implement successful rebate programs and how to avoid the pitfalls others have experienced. Speakers will describe various types of rebate programs, share the “best practices” they have developed for fulfilling or implementing rebates, debate the pros and cons of rebate marketing, and discuss the past and future role of government in improving consumers’ experiences with rebates.

Sounds like an interesting event. Details are available here.

Repeal Robinson-Patman?

In 2002, Congress created something called the Antitrust Modernization Commission. The commission was asked to look into antitrust laws and recommend changes.

The final report from the commission is due in April but tentative recommendations have been released, including the following:

ROBINSON-PATMAN ACT
44. Congress should repeal the Robinson-Patman Act in its entirety.
45. [Note: Discussions at the July 26th deliberation meeting proposed this tentative
recommendation.] Until Congress repeals the Robinson-Patman Act, courts
should interpret the Act to require plaintiffs to make a showing of injury to
competition similar to that required under the Sherman Act.

Full text of tentative findings are here.

I doubt very much that the new congress, which is very different from the one that crearted the AMC, will do as the commission asks. I also wonder how much it matters.

My own opinion, since you asked, is that Robinson-Patman, flawed as it is, should not be repealed. It should be revised to reflect the realities of the marketplace, however. The most important of these is that market power exists more with the retailer than with the manufacturer, and that R-P should therefore be directed at stopping retailers from demanding market-distorting allowances, rather than at punishing manufacturers for giving into such demands.

I have often argued that R-P is written backward, and is comparable to a bank robbery law saying that it is illegal for banks to allow themselves to be robbed, and that the bank president will be jailed if it happens.

Wal-Mart pushing hard internationally

Despite their decidely mixed record in international efforts, Wal-Mart is still going all out:

• They are in talks to acquire a leading Russian retailer, Karusel
• As previously reported here, there are in partnership to enter India
• They are buying a 35% share in TrustMart, a top Chinese retailer, in what is seen as a direct challenge to Carrefour -- up to now the leading foreign retailer in China
• They are also reported to be in talks to have their Asda subsidiary (#2 in the UK market) buy Sainsbury, the #3 chain

It's understandale that they see more growth potential overseas, but their record to date outside North America has been poor. They've been successful in Canada and Mexico, but Asda has struggled, to be polite about it ("Bankers have said they expect Wal-Mart and Asda have looked at Sainsbury because it is the latest realistic chance for it to catch up with Tesco, which is now double Asda's size"), Wal-Mart has done poorly in Japan, and Korea and Germany were total disasters.

Nike doing private label with Payless

Nike is introducing a new brand of athletic shoe, Tailwind, as a private label at Payless stores. The shoes will be made by Nike's Exeter group, which markets the Starter and Shaq brands.

Discount shoe retailer Payless ShoeSource Inc. has paired up with a subsidiary of Nike Inc. to market a high-performance $34.99 running sneaker, a move that both companies hope will take advantage of a highly lucrative market.

Under the terms of the multiyear deal, Exeter Brands Group LLC, a wholly owned subsidiary of Nike, will design and produce the shoes under the Tailwind collection, while Payless will serve as the exclusive retailer.

The question is why Nike wants so many brands at the low end. One thought is that they intend to pursue a private label strategy with mass merchants, with Tailwind exclusively at Payless, Starter at (mostly) Wal-Mart, and Shaq at other mass outlets.