Additional material published April 4, 2007
CORRECTIONS AND CLARIFICATIONS
A graphic on the front page of Tuesday's Business section in early editions incorrectly described the network affiliations of Tribune Co.'s television stations. Fourteen stations, including WGN-TV in Chicago, are CW affiliates; six are with Fox; two are with MyTV and one is with ABC. In some editions the graphic also incorrectly included CLTV in the list of television assets. The Chicago-area cable news channel is part of Tribune Co.'s publishing division. Tribune also owns another cable property: Superstation WGN.
It must have been quite a sight in baggage claim at Phoenix Sky HarborAirport. Crane Kenney, Tribune Co.'s general counsel and corporate secretary,was on his mobile phone getting yelled at by Chicago billionaire Sam Zell, whowas calling from a jet cruising at 35,000 feet.
Kenney had just arrived in Arizona, where he had gone two and a half weeksago to oversee the Cubs in spring training. He earlier had called the realestate magnate's right-hand man, Bill Pate, with what ostensibly should havebeen good news. Zell's proposal to take the media conglomerate private with atax-efficient employee stock ownership plan, shelved just a week earlier bythe company's independent directors, was back in play.
But miffed at the sense he was being jerked around and tired of dealingwith teams of advisers and lawyers rather than a single dealmaker, in thiscase Kenney, the plainspoken Zell tore into the lawyer with a voluble streamof blunt, earthy verbiage so seldom heard among Tribune Co. executives that itquickly became the stuff of legend throughout Tribune Tower.
Zell actually had no problem with Kenney. But there was a message to besent two and a half weeks ago, as loud and powerful as any of the real estatemagnate's prized motorcycles: Zell was serious about this deal and Tribuneought to be serious about him.
He wasn't just revving his engine when he first approached Tribune, throughrepresentatives of Merrill Lynch, a few days before the company's announcedJan. 17 deadline for bids. He truly believed he had hatched a plan to untetherTribune from its sinking share price and unlock the value of its variousassets. It could be a big money-maker for him as well as the Chicago-basedconcern 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 returnTribune to private ownership, announced Monday, was reported from interviewswith key figures on all sides of the transaction. Much would occur in the daysand late nights leading to the board's late Sunday vote approving Zell'sproposal, including the sort of stagger steps that had come to be expected inthe company's serpentine six-month strategic review.
Los Angeles billionaires Eli Broad and Ron Burkle, who first approachedTribune 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 ondetails but borrowed from Zell's ESOP strategy and promised more money thanZell. The committee considered it Friday and Saturday, but ultimately favoredZell's deal as more concrete.
Still, the board in an early Sunday meeting was able to use the rival bidto wring another $1 per share from Zell, matching the Broad and Burkle offerby the time it reconvened at 9:30 p.m. Zell, who spent most of the decisiveweekend relaxing at his retreat in Malibu, Calif., went to bed in ChicagoSunday assured he would awaken with an agreement. The board's approval came at11:15 p.m. Tribune Chief Executive and President Dennis FitzSimons, whom Zellwill succeed as chairman once the deal is complete, didn't slip into his Audiparked off Lower Michigan Avenue until two hours later.
FitzSimons had only gotten two hours sleep the night before and, with theofficial 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 thatkind of year for FitzSimons, who not only had business difficulties but alsodealt with a diagnosis of and treatment for prostate cancer.
"It's been not a lot of fun," FitzSimons would say Monday. "I'm just gladthe [strategic review] process is over. Look, six months is too long for acompany 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 readingthat their company is not a strong company? Well, it is," he said. "Are wechallenged for growth like everybody in the traditional media business? Yes.But it was a very large and vocal shareholder ... that caused us to havereputational damage. That's the thing I don't like."
California's Chandler family, heirs to the Times Mirror empire, who gaineda sizable stake in Tribune after brokering Tribune's 2000 acquisition of theLos Angeles-based media company, is famous for its tax-averse investmentstrategies. One such strategy involved a couple of partnerships Tribuneacquired with Times Mirror.
The Chandlers informed Tribune in February 2006 that they wanted asettlement that would benefit them. But a previous Chandler-Times Mirrorgambit that had gone awry to the tune of a $1 billion tax bill Tribuneinherited in 2005 had soured Tribune's leadership on favorable terms for thefamily. Tribune sources say the Chandlers indicated at that time that if thefamily didn't get the deal it wanted by May there would be trouble.
Compounding the Chandlers' displeasure was the board's attempt in May tostage a share buyback to energize a stock price dragged down by Wall Street'sskepticism. . By retaining their shares instead of selling them back theChandlers surpassed the non-profit McCormick Tribune Foundation, as Tribune'slargest shareholder, with what was now a 20 percent stake.
Not only did the Chandlers sit out the buyback at $32.50 per share, theytook their disagreement public, as promised. In stirring the pot by arguingthe breakup value of Tribune Co. was around $46, they hoped to drum upinterest that would raise the value of their stock.
By September the buyback was completed and animosity with the Chandlerssubsided enough to unwind the two partnerships. Tribune, which owns the Chicago Tribune, publicly launched a strategic review of options to boostshareholder value. The company had been privately considering its options for11 months, but this request for offers for all or some of the company all butensured that Tribune would undergo at least some restructuring.
By the time the company's mid-January deadline for bids rolled around theChandlers had submitted their own bid for the company. Its value, $31.70 pershare, was a far cry from their earlier claim. .
As an alternative, management devised a "self help" strategy of borrowingto pay shareholders a dividend, cashing out the Chandlers, yet remaining apublicly traded company.
Zell's ESOP financing was initially seen as too complex, even by theChandlers, who are hardly strangers to complex dealings.
Meetings to consider the ESOP had to involve a trustee, Duff & Phelps, torepresent employees' interests, since they would be putting their retirementsat risk. That turned what would normally be two-sided negotiations intotriangular affairs. The fact that each side needed virtual armies of expertson ESOPs meant meetings were conducted in packed conference rooms.
It was the Chandlers' resistance to Zell's plan that put the proposal onice. But Northern Trust Corp. Chairman William Osborn, Tribune's leadindependent director, felt it better to have two plans in contention and toldmanagement to bring Zell back into the process, which is how Kenney got anearful that day in Phoenix and how 159-year-old Tribune Co. got new ownership.
IN THE WEB EDITION: Go to chicago tribune.com/tribune to findTribune-related articles, images and videos, including:
* A historian's view ofthe Zell deal as 'a great paradox.'
* A narrative by chief business correspondent David Greising.
* Photos from the Chicago Tribune's past and present.