Chicago Magnate To Control Tribune

By Frank Ahrens
Washington Post Staff Writer
Tuesday, April 3, 2007

Chicago real estate magnate Samuel Zell outbid a pair of other billionaires for control of Tribune Co. yesterday, a move that would put the storied media empire in private hands and install a powerful personality at the helm of the industry's third-largest newspaper chain.

Zell withstood an 11th-hour surge by Southern California businessmen Eli Broad and Ronald Burkle, winning a bidding war taken as an encouraging sign by some in the struggling newspaper industry.

Tribune's board accepted Zell's plan to buy out stockholders for $34 per share and institute an employee stock-ownership plan, a framework that has been tried elsewhere in the newspaper industry with mixed success, but not on this scale.

Zell, 65, is a colorful and sometimes quirky businessman who rides motorcycles and got his start in real estate as an apartment manager in college. Over the next four decades, he built what would become the nation's largest office building company, which he sold in February for $39 billion, clearing at least $1.1 billion in the transaction.

The deal's total value is about $13.2 billion -- $8.2 billion to purchase outstanding shares of stock and about $5 billion in existing Tribune debt that Zell is assuming. Zell is putting up only $315 million of his own money to buy Tribune's 16 newspapers, including the Los Angeles Times and Chicago Tribune; 26 radio and television stations; and other properties, including a stake in job-search site He would also gain two seats on the Tribune board, including the chairmanship. Current Tribune management would be retained, the company said. The buyout is expected to be completed this year.

Newspaper executives at other companies raised red flags about the extraordinary amount of debt required in the deal. If the buyout proceeds as planned, Tribune would carry a debt load of about 10 times its cash flow -- nearly double that of the most highly leveraged newspaper companies.

The deal's high leverage led Standard & Poor's to cut Tribune's credit rating yesterday, with a further downgrade anticipated.

Zell will not buy Tribune's baseball club, the Chicago Cubs. In a separate announcement yesterday -- baseball season's opening day -- Tribune said it is putting the Cubs up for sale to pay down corporate debt and expects to find a buyer by the end of the year. The club is estimated to be worth at least $600 million, according to analysts.

Yesterday's deal is the latest shake-up in the newspaper industry, which is undergoing its most significant upheaval in years. Faced with subscription losses, competition from the Web and punishment from Wall Street for their poorly performing stocks over the past decade, newspaper companies are being pushed from public ownership into the hands of leveraged-buyout firms and wealthy individuals.

By going private, Tribune "gets out from underneath Wall Street's spotlight and can develop a game plan that's a little more long-term-focused," said Edward Atorino, media analyst for Benchmark, a research firm. "They don't have to worry about quarterly numbers. This gives them a little more time to adjust to the terrible environment newspapers are in."

Zell's purchase may herald a new era of press lords, 100 years after Pulitzer, Hearst and the Chicago Tribune's own monarch, Col. Robert R. McCormick, whose influential reign at the helm of the Tribune lasted a half a century.

Zell swooped in on Tribune after the company officially concluded its auction in January to lukewarm response. The company was forced on the block in September by dissident shareholders upset with the slide of Tribune stock, which has lost nearly half of its value in the past seven years.

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