Chicago Magnate To Control Tribune

The strategy fit Zell's modus operandi: He is known on Wall Street as the "grave dancer" for his ability to identify and acquire undervalued companies and extract profit.

Last year, shareholder dissatisfaction led to the breakup of the venerable Knight Ridder chain, which was purchased by the McClatchy newspaper company. The New York Times Co. has felt heat from institutional investors over its poor stock performance in recent years, as well.

"I am delighted to be associated with Tribune Co., which I believe is a world-class publishing and broadcasting enterprise," Zell said in a statement. "As a long-term investor, I look forward to partnering with the management and employees as we build on the great heritage of Tribune Co." Through a spokeswoman, Zell declined to comment further.

The deal must still be approved by Tribune shareholders. It includes a breakup fee of $25 million for Zell if Tribune solicits and chooses a superior bid.

Zell has said he wants to keep the company intact, but he would face some regulatory hurdles to do so.

Tribune owns television stations and newspapers in several cities, such as Los Angeles, which is a violation of Federal Communications Commission "cross-ownership" rules designed to ensure media diversity.

Tribune has received temporary waivers that allow it to break the FCC rules and has lobbied the agency heavily over the past several years to change the rule to allow cross-ownership. In 2004, the FCC attempted to do so but was blocked by a court order.

Zell may be confident that he can clear the FCC issues: He was advised by a number of lawyers that he may not have to re-apply for the waivers as a new owner because he will own less than half of Tribune, with employees holding the majority stake, said a source familiar with the situation who spoke on condition of anonymity because the process is ongoing.

Both the Zell and the Broad-Burkle bid offered an employee stock-ownership plan as a way to buy back Tribune stock. A spokeswoman for Broad and Burkle had no comment on Tribune's selection of Zell's bid. New Tribune stock would be issued to company employees over time, and they would gain a majority holding of the company's common stock.

Such ownership plans have been popular in other sectors, such as the steel industry.

A similar plan failed at the Milwaukee Journal Sentinel because overwhelming debt drove down the company's value, said newspaper analyst John Morton, but one has succeeded so far at the Omaha World-Herald.

At the Peoria (Ill.) Journal Star, the plan worked too well. When the paper grew highly profitable, it drove up the value of employees' holdings, and staff members chose to cash out before retirement.

"Over four or five years, the cost of buying out employees who were leaving was going to be so burdensome, it was going to break the company," said Morton, who did yearly appraisals of the Peoria paper. As a result, the paper was forced to sell out to a chain.