March 12, 2007—What kind of a news baron would Sam Zell make?
With Tribune Co. seriously considering the Chicago real estate billionaire's buyout offer, it's no idle question.
Equity Office Properties Trust -- which was sold last month to Blackstone Group for $23 billion -- Zell, 65, has a long history with smokestack industries, having invested in makers of bicycles, barges, mattresses and airplane rivets.
But his only major foray into the media business came with Cincinnati-based Jacor Communications Inc., which he bought out of bankruptcy in 1993 and turned into one of the nation's largest radio-station chains before selling it to Clear Channel Communications Inc. in 1999. Typically, Zell bought smart and sold smart. He claimed in an interview with Barron's to have pocketed $1.3 billion on an initial investment of $70 million.
What happened during his ownership of Jacor may be more relevant to the case of Tribune, the Chicago-based parent of the Los Angeles Times, KTLA-TV Channel 5, the Chicago Tribune, two dozen other TV stations, nine other newspapers and the Chicago Cubs baseball team. Zell is a maverick in his casual dress, blunt language and contrarian investing approach. Unlike some other self-made tycoons, he is far from a lone wolf. Throughout his career, Zell has forged strong relationships with partners and subordinates.
His proposed partner in the Tribune buyout is an employee stock ownership plan, or ESOP, that would be created as part of the deal, presumably to provide tax benefits.
He has not mentioned a price or provided any other details of his offer publicly. But an article in Barron's on Saturday said Zell's offer was valued at $13 billion, consisting of a $300-million cash investment from the real estate mogul and the remaining $12.7 billion in debt.
That would be a slight premium over Tribune's current value: It's stock was worth $7.4 billion on Friday and the company has debt of $5 billion. He declined to be interviewed for this story.
Tribune's board is scheduled to meet Saturday, at which time it could vote on Zell's proposal or to opt for a "self-help" restructuring plan that would include paying a big dividend to shareholders, according to one Tribune executive who requested anonymity because he was not authorized to speak about the process. A Tribune spokesman declined to comment.
At Jacor, Zell gave a free hand to an executive team led by Randy Michaels, a radio industry legend who was every bit Zell's equal as a nonconformist. Michaels was a promotional whiz who often pushed the boundaries of on-air good taste. Once, for example, he pretended to puree a live frog -- a rival station's mascot -- in a blender.
When Zell sold Jacor, one of his stipulations was that Clear Channel retain Michaels as chief executive, a post he held until 2002. The two men remain friends. Michaels was named to head a nine-station TV group that private-equity firm Oak Hill Capital Partners acquired in January for $575 million from New York Times Co. Michaels declined to be interviewed.
"They were both flamboyant but in different ways. Maybe that's why they got along so well," said radio veteran Thom Ferro, head of Broadway Entertainment in Los Angeles and a former executive of Westwood One. Zell's strength was in finance and Michaels' was in operations, so the two complemented each other, Ferro said.
According to radio industry people, Zell provided broad strategic direction and capital and let Michaels and his top lieutenant, Bobby Lawrence, take it from there.
When the Telecommunications Act of 1996 deregulated the industry by easing national ownership limits, Zell gave Michaels and Lawrence the green light for an acquisition binge of 200 stations in less than three years. They tended to cluster stations geographically so that ad sales and other functions could be spread across multiple stations to cut costs.
Because the industrywide consolidation squeezed out smaller, quirkier radio operators and advanced a trend toward programming formats that could be rolled out nationwide, Zell and Michaels are among those often blamed for the homogenization of radio.
Radio doesn't standardize as easily as fast food, and some traditionalists resented the changes, said Jeff Smulyan, chairman of Indianapolis-based radio company Emmis Communications Corp.
"I think people in the culture love the culture," Smulyan said, adding that Zell and Michaels proved themselves "very astute businessmen."
Zell has yet to describe his plans for Tribune. If he sees a growth or consolidation opportunity for newspapers and local TV stations a la mid-1990s radio, he's nearly alone in that view. The five-month-long auction for Tribune has failed to generate any bids offering a premium above where the stock has been trading. Tribune shares closed Friday at $30.55, up 62 cents.
Zell is primarily a real estate investor, so some suspect he's mainly interested in such Tribune holdings as the iconic Tribune Tower on Chicago's Miracle Mile and The Times' headquarters in downtown Los Angeles.