Zell in Talks With Geffen On Deal for L.A. Times

A supervisor repairs equipment at the Chicago Tribune's printing facility. The paper's parent company accepted a bid Monday by Samuel Zell.
A supervisor repairs equipment at the Chicago Tribune's printing facility. The paper's parent company accepted a bid Monday by Samuel Zell. (E. Jason Wambsgans -- Associated Press)

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By Frank Ahrens
Washington Post Staff Writer
Thursday, April 5, 2007

Chicago real estate mogul Samuel Zell, whose $13.2 billion bid for the Tribune Co. media empire was accepted Monday, has already talked to entertainment mogul David Geffen about a possible deal for the Los Angeles Times and dismissed a pair of rival bidders as backstabbers.

Zell said Eli Broad and Ronald Burkle, Southern California billionaires who also bid on Tribune, approached him late in the process about forming a partnership to buy the company. Zell said in yesterday's Chicago Tribune that he put them off until his bid was accepted.

Broad and Burkle then complained in a letter to the Tribune board that Zell's bid got preferential treatment over their original offer.

"If somebody calls me and says 'I want to be a partner' and the next day tries to stick a knife in my back, tell me again why I would want to do business with him?" Zell told the Tribune. Representatives for Broad and Burkle declined to comment.

Meanwhile, a source familiar with Geffen's thinking who spoke on condition of anonymity because negotiations are ongoing said Geffen has spoken with Zell since Monday's announcement and is optimistic that he may gain control of the Times, either in a spinoff deal or a joint-venture partnership. Geffen's original $2 billion offer for the Times was turned down in November.

"Yes, I continue to want to buy the Los Angeles Times," Geffen said in an interview yesterday.

Broad and Burkle, whose 11th-hour push for Tribune fell short, are meeting with their advisers and remain interested in the company, said a source close to the situation who spoke on condition of anonymity because plans are still fluid.

A clause in Tribune's deal with Zell allows the company to solicit higher bids until shareholders vote on Zell's offer this summer. If Tribune ends up dumping Zell's bid, it will have to pay him a relatively small $25 million breakup fee, giving the company greater flexibility to go another direction.

With several variables still in play, the eventual shape, size and ownership of the company's many pieces remain uncertain. Tribune owns 26 radio and television stations, 16 newspapers and several other properties.

Financially, the most controversial part of Zell's bid is that it loads the company with an extraordinary amount of debt. He has offered $34 per share for the company, for a total of $8.2 billion, but only $315 million of that is his money. The remainder of the investment would be debt, and Zell would also have to take on $5 billion in existing Tribune debt, pushing the total debt to about $13 billion, or 10 times the company's anticipated 2007 cash flow. The most highly leveraged newspaper companies operate at about five times cash flow.

That puts Tribune in a "precarious financial position," Peter P. Appert, a Goldman Sachs analyst, wrote in a research note Tuesday.

Tribune has already said it will sell the Chicago Cubs baseball club to pay down debt, but analysts said the sale would raise $700 million at most, which could force Tribune to sell other assets or take partners in joint ventures.

Zell's deal would create an employee stock-ownership plan at Tribune. Tribune rejected Geffen's bid for the Times because the company did not want to sell off individual media properties, owing to the high taxes associated with a piecemeal sale.

An employee-owned company is afforded tax benefits that ordinary companies are not, which would enable Zell to sell individual properties, such as the Times and the Baltimore Sun, with fewer tax penalties, said Lisa Van Fleet, leader of the employee benefits practice group at Bryan Cave, a law firm specializing in labor law. At the same time, because an employee-owned company's first obligation is the protection of its employees' retirement accounts, potential buyers have more hoops to jump through when dealing with such companies, she said.

Geffen, who founded DreamWorks SKG studios with Steven Spielberg and Jeffrey Katzenberg, has said he thinks the Times should feature more local coverage, as well as improved national and foreign reports, and would like to see more robust and inclusive opinion pages.

Meanwhile, a group of Baltimore businessmen remains interested in buying the Sun, which is valued by analysts at about $500 million. "Our intention is to approach Mr. Zell at some point after he's digested all of this," said businessman and former politician Ted Venetoulis, who is leading the group. Venetoulis has spoken to Broad about spinning off the Sun should the Broad-Burkle bid ultimately prevail.

The mood in the Times newsroom after Monday's announcement is "understandably anxious," said editor James O'Shea, because it is not clear that months of newsroom turmoil -- including the ouster of a publisher and an editor -- are over.

"Obviously, there's the thought that we could be spun off or sold again," O'Shea said.


© 2007 The Washington Post Company

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