Sam Zell's Latest Gamble: Tribune Co.

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Chicago real estate billionaire Sam Zell is often called the "Grave Dancer" for his willingness to take on business risks. His latest bold maneuver is the purchase of the Tribune Company — a struggling media congomerate based in his hometown.

Richard Kincaid has worked for Sam Zell for nearly 17 years, heading up Equity Office Properties. It was the country's largest office landlord. The business was sold earlier this year for $39 billion to the Blackstone Group

Although Zell has invested in other businesses, Kincaid says Zell has made his biggest mark in real estate.

"He's really a hands-off manager," Kincaid said. "But in terms of the strategist — being able to look around the corner and see how trends are coming together — I think there's probably nobody better than [Zell]."

Zell, 65, grew up in Chicago. He is the son of Jewish immigrants who left Poland before the Nazi invasion.

Bearded, blunt-spoken and bald, Zell is small in stature at 5'5" tall. But his personality is outsized. He is an avid skier, paintball enthusiast and motorcycle rider, rolling with a group called Zell's Angels.

His willingness to go against the odds has helped Zell amass an estimated $4.5 billion fortune. Zell starting making money while still a student at the University of Michigan by buying distressed properties.

Judd Malkin, a real estate mogul in his own right as the chairman of J&B Realty, says Sam Zell has been an industry leader. In particular, his 1980s push into real estate investment trusts showed the way for many in the industry.

"In the late '80s ... the bubble sort of burst in the real estate business ... [and] people were wringing their hands and not doing much," Malkin said. "Sam was doing a lot, and put together some wonderful companies."

The businesses Zell got into included a mobile-home company and the country's largest apartment properties firm.

There have been missteps. Analysts have said the near bankruptcy of a department store and mistakes at Equity Office cost shareholders money. But Zell redeemed himself when he sold that company in what's been called the country's largest leveraged buyout ever.

Now Zell is ready to take on new risk with the Tribune Company.

David Hiller, the current publisher of the Tribune's Los Angeles Times, and the former publisher of the Chicago Tribune, says he didn't see any of Zell's bid presentations. But he did meet the mogul, and was impressed.

"He loves newspapers in terms of his own use. He's more of an optimist about the future of newspapers than a lot of people are, including some in the industry," Hiller said. "It's my sense that he's in this because this is a business he feels he can build and grow. He wants to ride it up and not down."

Tribune Company Sold to Real Estate Magnate

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Chicago real estate tycoon Sam Zell has emerged as the successful suitor in lukewarm bidding for the Tribune Company, owner of 11 daily newspapers, 23 television stations and the Chicago Cubs.

The Chicago-based media company announced Monday it will pay shareholders $34 a share to go private, relying on a complicated arrangement that uses employees' retirement funds to borrow billions of dollars. The Cubs are to be sold to help pay down debt.

While the company's future path appears to be clearer, what it means for Tribune journalists remains murky. Executives told employees Monday that they should expect serious additional job cuts – perhaps within the next two months.

If the deal goes through as planned, billionaire Zell will wind up with a controlling minority stake in Tribune, even though he is putting up just $315 million of his own money for a company valued at $8.2 billion.

The Tribune Company owns some of the most distinguished newspapers in the business, including the Los Angeles Times, the Chicago Tribune and the Baltimore Sun.

But like other newspaper companies, Tribune has suffered as advertisers have migrated to the Internet. Shareholders forced a sale.

Howard Schneider, the former editor of the Tribune paper Newsday, says taking the company private protects the papers from investors' complaints. But Schneider says there's no guarantee of a happy ending.

"If the newspapers continue to erode, if serious journalism is not supported, then I think this will be a terrible move," Schneider says.

The Tribune Company eliminated Newsday's foreign bureaus and most of its Washington reporters, and Schneider left the paper over related budget cuts.

"My former colleagues have been caught in a spiral that continues to say the only way we can continue our profit margins is to cut good journalism," he says. "And that is, to me, a death spiral."

Zell, who is to become The Tribune Company's new chairman, was not available for comment.

Los Angeles Times publisher and former Tribune Company executive David Hiller says some of the expected job cuts are needed simply to help prop up the bottom line. But he says he's bullish on private ownership, which will also allow him to use some of the savings to create new jobs for his paper's Web site.

"You can do it and make smart decisions without being in the minute-by-minute public glare of Wall Street," Hiller says.

Zell has said he sees the company as an investment — and isn't particularly interested in the news business. That's a very different sentiment than the one expressed by Chicago Tribune metro columnist Mary Schmich.

"Let me just say, I don't feel like I work for a company," Schmich says. "I don't work for Tribune Company. I work for the Chicago Tribune."

The deal hinges on what's called an "employee stock-option plan" — a complicated arrangement that would use retirement funds to help borrow the money needed to buy out shareholders. While details haven't been fleshed out, employees could benefit if the company's revenues improve. But there's a risk: Their retirement funds could suffer, too.

The Tribune Company's current management will stay in place, at least for now. But Schmich says there are many people in Chicago who are still angry that the Tribune Company's leadership decided to buy the Los Angeles Times and its sister papers back in 1999.

"I think that there are a fair number of people who feel that it reached too far, that it grasped too much, and that this contributed to bringing us down," Schmich says.

Some of those papers acquired by the Tribune Company were prestigious, but also in less-profitable markets than those already owned. But Hiller, who helped review the purchase of the former Times-Mirror Company for Tribune, says the company's struggles have far more to do with larger trends in the industry.

As the Internet has diverted subscribers and advertisers, deep cuts have ensued at Tribune papers; they led to a mutiny in the executive suites of the Los Angeles Times.

"There's been a lot of turmoil in the upper management of the newsroom," says Dan Neil, a Pulitzer Prize-winning columnist at the Times. "Obviously, we've lost publishers, and we've lost some very great executive editors."

In fact, the past two publishers and past two top editors at the Los Angeles Times were forced out — or left — after ruptures with their Tribune Company bosses over budgets.

Neil says the hope at the Times is that Zell will decide to sell it off.

"And then, in kind of an ironic way, we return to a previous era of publishing, when we were dealing with locally owned, locally invested publishers," Neil says. "It sort of takes us back to the Chandler era."

The late Otis Chandler, of course, was the legendary publisher and owner of the Los Angeles Times. But it's not clear the Times is for sale — and publisher Hiller says he's been given no indication that it will be.

Two Los Angeles billionaires who say they are attracted by the public service of journalism – Ron Burkle and Eli Broad – joined forces to bid for Tribune, too. But they didn't promise to keep the current executive team at the helm, and their bid seemingly came up short.

Even so, the Tribune Company would only have to pay a $25 million penalty if it chose to unravel the new deal. That may give Burkle and Broad one last chance to sweeten their offer.



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