CORRECTIONS AND CLARIFICATIONS
It must have been quite a sight in baggage claim at Phoenix Sky Harbor Airport. Crane Kenney, Tribune Co.'s general counsel and corporate secretary, was on his mobile phone getting yelled at by Chicago billionaire Sam Zell, who was calling from a jet cruising at 35,000 feet.
Kenney had just arrived in Arizona, where he had gone two and a half weeks ago to oversee the Cubs in spring training. He earlier had called the real estate magnate's right-hand man, Bill Pate, with what ostensibly should have been good news. Zell's proposal to take the media conglomerate private with a tax-efficient employee stock ownership plan, shelved just a week earlier by the company's independent directors, was back in play.
But miffed at the sense he was being jerked around and tired of dealing with teams of advisers and lawyers rather than a single dealmaker, in this case Kenney, the plainspoken Zell tore into the lawyer with a voluble stream of blunt, earthy verbiage so seldom heard among Tribune Co. executives that it quickly became the stuff of legend throughout Tribune Tower.
Zell actually had no problem with Kenney. But there was a message to be sent two and a half weeks ago, as loud and powerful as any of the real estate magnate's prized motorcycles: Zell was serious about this deal and Tribune ought to be serious about him.
He wasn't just revving his engine when he first approached Tribune, through representatives of Merrill Lynch, a few days before the company's announced Jan. 17 deadline for bids. He truly believed he had hatched a plan to untether Tribune from its sinking share price and unlock the value of its various assets. It could be a big money-maker for him as well as the Chicago-based concern and its employees, if only Tribune could see through its complexities.
Zell did in fact make his point and Tribune made the deal. Eventually.
This account of how they arrived at that historic agreement to return Tribune to private ownership, announced Monday, was reported from interviews with key figures on all sides of the transaction. Much would occur in the days and late nights leading to the board's late Sunday vote approving Zell's proposal, including the sort of stagger steps that had come to be expected in the company's serpentine six-month strategic review.
Los Angeles billionaires Eli Broad and Ron Burkle, who first approached Tribune last year individually with interest in buying the Los Angeles Times, submitted an 11th hour revision of an earlier offer that was submitted, downgraded and ultimately dismissed. The late Thursday offer was light on details but borrowed from Zell's ESOP strategy and promised more money than Zell. The committee considered it Friday and Saturday, but ultimately favored Zell's deal as more concrete.
Still, the board in an early Sunday meeting was able to use the rival bid to wring another $1 per share from Zell, matching the Broad and Burkle offer by the time it reconvened at 9:30 p.m. Zell, who spent most of the decisive weekend relaxing at his retreat in Malibu, Calif., went to bed in Chicago Sunday assured he would awaken with an agreement. The board's approval came at 11:15 p.m. Tribune Chief Executive and President Dennis FitzSimons, whom Zell will succeed as chairman once the deal is complete, didn't slip into his Audi parked off Lower Michigan Avenue until two hours later.
FitzSimons had only gotten two hours sleep the night before and, with the official announcement set for early morning, before markets opened in New York, he wasn't likely to get any more on this night, either. It had been that kind of year for FitzSimons, who not only had business difficulties but also dealt with a diagnosis of and treatment for prostate cancer.
"It's been not a lot of fun," FitzSimons would say Monday. "I'm just glad the [strategic review] process is over. Look, six months is too long for a company to be reading about itself, to have all its employees uncertain. "There's $1.3 billion or $1.4 billion in cash flow and everybody's reading that their company is not a strong company? Well, it is," he said. "Are we challenged for growth like everybody in the traditional media business? Yes. But it was a very large and vocal shareholder ... that caused us to have reputational damage. That's the thing I don't like."
California's Chandler family, heirs to the Times Mirror empire, who gained a sizable stake in Tribune after brokering Tribune's 2000 acquisition of the Los Angeles-based media company, is famous for its tax-averse investment strategies. One such strategy involved a couple of partnerships Tribune acquired with Times Mirror.
The Chandlers informed Tribune in February 2006 that they wanted a settlement that would benefit them. But a previous Chandler-Times Mirror gambit that had gone awry to the tune of a $1 billion tax bill Tribune inherited in 2005 had soured Tribune's leadership on favorable terms for the family. Tribune sources say the Chandlers indicated at that time that if the family didn't get the deal it wanted by May there would be trouble.
Compounding the Chandlers' displeasure was the board's attempt in May to stage a share buyback to energize a stock price dragged down by Wall Street's skepticism. . By retaining their shares instead of selling them back the Chandlers surpassed the non-profit McCormick Tribune Foundation, as Tribune's largest shareholder, with what was now a 20 percent stake.
Not only did the Chandlers sit out the buyback at $32.50 per share, they took their disagreement public, as promised. In stirring the pot by arguing the breakup value of Tribune Co. was around $46, they hoped to drum up interest that would raise the value of their stock.
By September the buyback was completed and animosity with the Chandlers subsided enough to unwind the two partnerships. Tribune, which owns the Chicago Tribune, publicly launched a strategic review of options to boost shareholder value. The company had been privately considering its options for 11 months, but this request for offers for all or some of the company all but ensured that Tribune would undergo at least some restructuring.