There is, you may have heard, a bit of unrest at Cygnus. I won’t go over it again. Here’s the latest that I know.

This was recently reported by top management to employees at offices around the country via teleconference:

Last year, the company, as a whole, grew 1.8%. EBITDA also grew (amount unspecified). This year, 8% growth was budgeted, but only 5.5% was achieved due to an acceleration of print losses. The pay cuts were made to ensure a higher rate of growth, because, according to the manager running the call, “The way to get out of this is to grow.”

The manager also compared the current situation to a college student with a credit card: “Did anyone have a credit card in college and go crazy with it? The answer isn’t more borrowing, it’s getting your house in order.”

Employees on the call asked questions about sharing in the company’s eventual profits when things were turned around (the converse of what is happening now), and mentioned a high level of disgruntlement, citing that lower level employees are feeling unmotivated to work harder knowing that their only real incentive is to keep their jobs.

This week, in min’s b2b, I spoke with Tad Smith, CEO of Reed Business Information.  He confirmed to me what I had been hearing from other companies: paper is getting more expensive.  Why?  Because many mills are closing or have closed.  But why are the mills closing?  Smith thinks it’s because the industry is trying to raise its profits and its margins.

If you’re a publisher, is your paper getting more expensive?   And if you’re an editor or art producer, are you being told that you have to downgrade your paper quality or that you can’t afford paper that you expected to be able afford on a new project?

Despite the implosion of the sub-prime housing loan market, the economy has been fairly resilient. Stocks are up, consumer confidence hasn’t nose-dived, and Americans are still spending.

That’s most of the good news. And now, some of the bad news:

- The dollar is at its weakest point since the 70s. One greenback is now roughly equal in value to one Loonie, the Canadian dollar.

- The Army Corps of Engineers recently assessed America’s infrastructure and gave it, overall, a D. (See the Minneapolis bridge collapse.) This is a problem that will affect commerce increasingly in the coming years.

- The EU has recently passed a chemical control act called REACH that, because of the size and economic power of the EU, will be the industry standard. The American Chemical industry is already reacting, and it will cost billions of dollars over the next 10 years–that’s on top of the hundreds of millions our government and industry has spend lobbying the EU, basically to keep carcinogens in American products. (Turns out, though, that in the end, this legislation will benefit the larger chemical companies, as they will have control over the information that the EU will demand on their products, and downriver chemical users will have to buy that information from Dow Chemicals, etc, to be able to verify the safety of the products they sell in Europe.) This is not the only instance in the world of America taking a back seat to forward-thinking policies that are stimulating foreign economies and hurting our own. This is entirely due to overly business-friendly, short-sighted, interest-group driven government policies.

- And, probably most disturbing, our national debt has reached a dizzying $9 trillion. This, compounded with the recent gashes the fed has made in the prime rate, should send inflation spiraling out of control soon. Why hasn’t this happened yet? Prices on foreign goods in this country have been kept artificially low by massive foreign firms who are looking to protect market share. (Do this: go to amazon.com and search for a Japanese product. Now go to amazon.de and search for the same product.) But how long will that last as long as the dollar weakens? And now on to Cygnus….

Read the rest of this entry »

I know very little about what is going on inside Cygnus right now: all I know I read in Folio and what was written to me in an email from someone within the company. I don’t know how much money this move will save them, or how close to the abyss (not making a payment to creditors) the company was or is. Nonetheless, I will offer my opinion.

- The article, by Tony Silber and Bill Mickey, Folio’s publisher/editor and one of its most senior correspondents, respectively, quoted an anonymous source from outside the company who said:

”While busting a bank covenant is never a good thing, it is not uncommon or traumatic for private companies,” the second source said. “Bank amendments occur all the time with lenders who cooperate with management to get through difficult times. It is hard to imagine that the CEOs and/or ABRY are willing to make the company go through this trauma in order to avoid the modest costs and pain of a bank amendment.”

I give ABRY and Carr/O’Brien (Cygnus’ co-CEOs) a bit more credit than that. They are not business neophytes. Theay know how borrowing goes, and ABRY has considerable experience living on the edge with Penton. This unusual move is not one that they would make without considering other options, including the initial steps towards bankruptcy.

- The one bit of information that my secret source within the company gave me that wasn’t in the Folio article was that the managers of the company had supposedly agreed to take a 25% “or more” pay cut. I’m not sure how this part of the deal is being structured, but I do not think that a 25% or even 35% pay cut by very senior management is comparable to a 7.5% cut for the rank and file.  Let’s engage in a thought experiment….

Read the rest of this entry »