Zell wins race for Tribune

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first_imgMonday’s announcement closes a contentious 10-month chapter for the Tribune Co., which occupies the landmark Tribune Tower in downtown Chicago. And it could end the financial stake in Tribune of one of America’s great newspaper dynasties, the Chandlers, whose patriarch, General Harrison Gray Otis, founded Times Mirror in 1884. It also ends a labored auction in which little interest in the company materialized. Wall Street appeared to approve of the move, sending Tribune stock up 70 cents to close at $32.81. Fearless investor Zell, 65, the son of refugees who fled Poland on the eve of Hitler’s invasion, is a self-made billionaire who has thrived on buying distressed businesses, turning them around and selling them at a profit. Newspapers, which face declining revenues and dropping circulations, might fit that description. Like other newspaper owners, Tribune has been hammered on Wall Street in the past few years as advertisers and readers left newspapers for the Web. Seemingly fearless in the face of risk, Zell once acknowledged riding his motorcycle as fast as 145 mph on a trip across the South American pampas. Bearded and blunt-spoken, Zell has long shown a fiery entrepreneurial passion for what he does. He grew up in Chicago and nearby Highland Park, Ill., where his father was a wholesale jeweler who dabbled successfully in real-estate investment and the stock market. He took pictures at his eighth-grade prom and sold them, and later took to buying Playboy magazines in downtown Chicago and reselling them to his classmates in Hebrew school in the suburbs for a 200 percent markup. His first successes in real estate, the foundation of a fortune estimated by Forbes magazine recently at $5 billion, came while he was a student at the University of Michigan. After managing the building where he lived in exchange for free rent, he moved on to managing other properties, ultimately incorporating an apartment-management business and then selling it. After working briefly at a Chicago law firm, he teamed with his Ann Arbor fraternity brother Robert Lurie and they began acquiring distressed properties from developers who were bogged down by high interest rates. That practice continued through the recession of the mid-1970s, with great success. Zell’s reputation grew, and in 1976 the contrarian investor talked about his penchant for spotting and pursuing opportunities in an article titled “The Grave Dancer” – a nickname that stuck. Zell wanted So far, Zell has not presented a plan for how he might turn Tribune around. Nonetheless, he was not only the favored bidder, but Tribune executives actively encouraged him over the weekend to match a higher bid from Burkle and Broad, who were offering $34 per share to Zell’s $33. Only after raising his bid three times did Zell match the Burkle-Broad bid, and each time, Tribune executives had pushed him to do so. They wanted Zell for many reasons. Dennis FitzSimons, the company’s current president, chief executive and chairman – who will cede the title of chairman to Zell when the transaction is complete at the end of the year – said in an interview that Zell had offered the certainty of closing a deal. The company had been working with him for several weeks when a revised Burkle-Broad offer came in. His offer delayed the company’s self-imposed deadline of the end of March by only one day. “The biggest thing we wanted to do was end this process, have a good outcome for shareholders and get focused on the future as opposed to the process,” FitzSimons said, weary of the long public deconstruction of Tribune’s management. Others said Zell’s legendary success in turning around distressed companies helped get him in the door. As James O’Shea, the editor of the Los Angeles Times, put it in a note to his staff Monday: “Sam Zell is a creative thinker and an inventive entrepreneur. A fresh shot of new thinking is not going to hurt us.” O’Shea added: “Mr. Zell also says he believes in the future of the news business. That is certainly good to hear.” FitzSimons said geography did not play a role in the selection of Zell, and that he had met the maverick real-estate mogul only in the past two months when Zell presented himself as a potential buyer. But others close to the talks said Zell’s Chicago roots gave him an advantage, particularly since the Burkle-Broad team was from Los Angeles. Tribune has been in an open feud with the Los Angeles Times, where the publisher and editor were forced out last year for taking public stands against cost cuts and where the newsroom, which could still see more job cuts, feels under siege. As a matter of pride, Tribune did not want to be seen as bowing to California, these people said. Another related factor in Zell’s favor, they said, was that he was explicit about wanting to buy out the Chandler family, who had long been a thorn in Tribune’s side.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! No editorial interest And Zell is a hometown player, not an inconsequential advantage when negotiating with a company characterized by a strong antipathy between the head office in Chicago and its biggest single asset, the Los Angeles Times. The deal will effectively buy out the members of the Chandler family, who became the biggest shareholders in Tribune when it bought the Times-Mirror Co. in 2000 and whose loud complaints last June about the company’s sagging stock price set the auction in motion. Zell, who has never owned a newspaper before, insists that his interest in Tribune is not editorial but economic. As part of Monday’s announcement, the company said it would sell the Cubs at the end of the season. But otherwise Zell has said he does not want to break up the company by selling off its individual properties or spinning off the television stations. In a statement Monday, he called himself “a long-term investor,” and added, “I look forward to partnering with the management and employees as we build on the great heritage of Tribune Co.” Still, David Geffen, the Los Angeles media mogul who made an early bid for the Los Angeles Times, made it clear he would still like to acquire the newspaper. “I remain interested and open to talking,” Geffen said. Others have expressed interest in Tribune papers, including Newsday, The Hartford Courant and The Baltimore Sun. Even Broad and Burkle might not be completely out of the picture. They were originally interested in buying the Los Angeles Times and they still could make a higher bid for the company. Tribune set a relatively low breakup fee of $25 million so that if it wanted to take a higher bid – and avoid a possible lawsuit – it could dismiss its deal with Zell and pay him only $25 million. How did a Chicago real-estate tycoon win one of the country’s premier media companies – a chain of big-city papers, two dozen television stations and the Chicago Cubs – in a deal valued at $8.2 billion with an investment of only $315 million of his own money? The Tribune Co., which owns the Los Angeles Times, the Chicago Tribune, The Baltimore Sun and other papers, announced Monday that it had joined forces with Sam Zell to take the company private and pay shareholders $34 a share. Despite being a late entrant, Zell managed to win the auction for Tribune over a rival team of Los Angeles billionaires, Eli Broad and Ronald W. Burkle, through a combination of savvy dealing and creative financial engineering. It was Zell who first proposed financing the transaction through an employee stock ownership plan, an arrangement that is typically used by much smaller companies. Most of the company’s stock will be owned by the employees through the plan, but Zell, who becomes the Tribune chairman, will be the largest individual shareholder, leaving him with a major interest for his relatively small investment. last_img

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