A colourful real-estate billionaire buys out one of the USA's hottest media properties, takes it private and says he can turn it around
The Tribune Company announced today that it has completed its going-private transaction by merging with an acquisition subsidiary of the Tribune Employee Stock Ownership Plan (Tribune ESOP). Sam Zell, who financed the transaction, becomes the chairman of the board and chief executive officer.
Under the terms of the merger agreement, the company's shares - except for those owned by the Tribune ESOP and shares held by shareholders who validly exercise appraisal rights - will be cashed out at $34 per share. The company's common stock ceased trading on the New York Stock Exchange at market close on Friday 21 December.
Samuel Zell visited the Chicago Tribune office on Thursday. ''I'm sick and tired of listening to everybody talk about and commiserate about the end of newspapers,'' he said. ''They ain't ended.''
At a news conference in Chicago to announce the event, billionaire real estate baron Zell was the quintessential businessman he is known to be; blunt, funny and thoroughly contrarian. He said of Tribune, ''I think it's a very low-risk investment, but this wouldn't be the first time that my opinion diverged from everybody else's.''
The transaction makes the Tribune a non-profit organisation owned entirely by an employee stock ownership plan. But Zell has the right to buy up to 40 per cent of it in the future. Tribune owns The Chicago Tribune, The Los Angeles Times, Newsday, The Baltimore Sun and 23 television stations, among other properties.
The company added five members to its board, replacing four departing directors. Three others remain, including Zell. Most of the newcomers have experience in communications, but not in Tribune's core sector of television and newspapers. Zell justified that, saying: ''This is not a board where we have to have people on it who are going to impress Wall Street,'' he said, ''they tend to be non-conventional thinkers.''
The new directors include Las Vegas Sun owner-editor Brian L Greenspun; talent agency International Creative Management head Jeffrey S Berg; telephone and Internet company Citizens Communications chairman and chief executive Maggie Wilderotter; venture capitalist Frank E Wood, who also has a chain of radio stations and an Internet technology company; and William C Pate, an executive of Zell's investment firm.
Zell also named two executive vice presidents. One is a former lieutenants in real estate, Gerald A Spector. The other, Randy Michaels, is a veteran television and radio executive. Zell disparaged the departing management of the Tribune, saying it was a place where ''decisions took a long time''.
Zell said he would challenge his new partners, the employees, to find creative ways to boost revenue and to cast off old attitudes. ''I believe this company has spent a significant amount of time in the last five years on cutting costs, and maybe not enough time on growing revenues,'' he said.
''What this company needs is an owner,'' he said later. ''It needs someone who accepts the responsibility for what this company does.'' The unusual deal gives Tribune's 20,000 employees the lion's share of the newly private company's stock.
As to the newspaper analysts and industry experts predicting layoffs and tough times ahead, Zell noted that they had already been proven wrong once - in believing that fast-declining revenue would prevent him from financing the transaction to take control of Tribune.
Zell, a Chicago boy, first showed his knack for making money as a child, when he bought Playboy magazines downtown and sold them at a considerable profit to his friends in the suburbs.
He got into real estate in law school, and proved to have a keen eye for distressed properties with potential. He sold his Equity Office Properties Trust to a private equity firm about a year ago for $39 billion including debt, the largest real estate deal ever.
Wearing jeans and an open collar at his first news conference as CEO, Zell looked at Tribune executives who had dropped their customary neckties. "I needed to be a direct agent of change," he said.
In a significant departure, Zell has taken the chief executive's job at the Tribune, His usual practice in his other businesses - which have sold everything from barges to mattresses and bicycles - of being ''the chairman of everything and the CEO of nothing''.
Though Zell has said he had no current plans to sell The Times or other major holdings - apart from the previously announced sale of the Cubs - he has said ''all assets are on the table'' if the offer is right.
But with advertising sales dropping steadily and an economic slowdown ahead, Tribune faces the stark possibility of being unable to generate enough cash to meet interest payments that initially are scheduled to exceed $1 billion a year.
But Zell is unruffled. Over the next 10 years, he said, if all Tribune accomplishes is to pay off its loans, he and the employees would be free-and-clear owners of an enterprise worth billions of dollars.
He has hinted that he could buy the company some breathing room by exploiting assets that he considers undervalued, like The Times headquarters in downtown Los Angeles and the Tribune Tower on Chicago's Magnificent Mile. He feels the latter is worth around $2 billion - far more than others have estimated.
Zell says he will not hold the chief executive's title indefinitely. In any case, he says: ''I'm not really going to be the CEO. I'm going to be the owner, which is what I've consistently said this company desperately needs.''