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Zell closes deal for The Times
For the second time in eight years, control of the Los Angeles Times changed hands Thursday, passing from a staid Chicago conglomerate to a private company headed by an unpredictable and colorful billionaire, in a debt-heavy deal that creates tremendous opportunities and risks for one of America's top newspapers.
New Chairman and Chief Executive Sam Zell took the reins of Tribune Co. and promised a broad shake-up that would decentralize power to The Times and other local business units, which include KTLA-TV Channel 5, the Chicago Tribune and nearly 30 other newspapers and television stations. Employees and civic leaders in L.A. greeted completion of the $8.2-billion transaction and the promise of local control with cautious optimism. Zell's verve and professed confidence in the news business charmed them, even as they worried that the company's onerous financial obligations might force staff cuts that would diminish The Times.
The unusual deal gives Tribune's 20,000 employees the lion's share of the newly private company's stock while pushing further into the rear-view mirror the nearly 120-year ownership of The Times by the Chandler family, who turned the newspaper into a political, economic and journalistic powerhouse.
The newspaper's new master obviously hopes that his timing is better than Tribune's. It was not long after the Chicago company purchased The Times and the rest of Times Mirror Co. in 2000 that the newspaper industry began to suffer a revolutionary decline: the loss of droves of readers and advertisers to the Internet.
Tensions over subsequent staff cuts led two publishers and two editors to leave the newspaper in less than two years -- a rift with the Chicago owners that made The Times a case study of the woes besetting the industry.
Zell, 66, has been telling his prospective employee-partners for months that he would not dwell on the failures of the past. His liberal use of profanity drove the point home. Zell said that he planned to end an era of diminished expectations by building on marquee brands such as The Times and the Chicago Tribune and that he had trumped conventional wisdom before.
"I'm sick and tired of listening to everybody talk about and commiserate over the end of newspapers," he said Thursday. "They ain't ended and they're not going to end. I think they have a great future."
As to the newspaper analysts and industry experts predicting layoffs and tough times ahead, Zell noted that they had already been proven wrong once -- in believing that fast-declining revenue would prevent him from financing the transaction to take control of Tribune.
"If you look at my track record, I haven't spent much time disassembling anything," Zell said in an interview Wednesday, "and I've spent my entire career building things."
Those remarks came during an hourlong interview in his cluttered, whimsical office in the Art Deco former headquarters of the Chicago Daily News, the bare-knuckles afternoon daily that failed in 1978 after more than a century in business.
Zell, a Chicago native, first showed his knack for making money as a child, when he bought Playboy magazines downtown and resold them at a considerable markup to his friends in the suburbs.
He got into real estate in law school and proved to have a keen eye for distressed properties with potential. He sold his Equity Office Properties Trust to a private equity firm about a year ago for $39 billion including debt, the largest real estate deal ever.
Zell likes to tell people in Los Angeles that he is no stranger to the city, having made his first real estate deal here in the 1970s. He flies frequently on his private jet to stay at a home that sits on a spectacular point at the end of Malibu's Broad Beach.
Among those who had vied for Tribune and the Los Angeles Times were three Los Angeles billionaires -- Eli Broad, Ron Burkle and David Geffen -- who said they hoped to return the newspaper to local ownership. Partners Broad and Burkle complained last spring when Zell became the favored bidder, saying he had special inside information. The protest went nowhere.
A new style became immediately evident on day one of the Zell regime. Wearing jeans and an open collar at his first news conference as CEO, Zell looked out at Tribune executives who had dropped their customary neckties.
In a more significant explosion of the sober Tribune culture, he named a group of new executives and directors from the worlds of entertainment and communications and replaced most members of a board that he said had been filled with "burghers" from Chicago's business and social elite.
Among the new hires: former "shock radio" impresario Randy Michaels, who will become one of two top operating managers. Included on the board: Hollywood agent Jeff Berg and Las Vegas publishing, gambling and real-estate entrepreneur Brian Greenspun. Greenspun's family also made "a significant investment" in Tribune, the company disclosed Thursday.
Perhaps even more significant, Zell took the chief executive's job, eschewing his usual practice in his other businesses, which sold everything from barges to mattresses and bicycles, of being "the chairman of everything and the CEO of nothing."
"I needed to be a direct agent of change," he said.
If anyone missed the idea that the new proprietor wouldn't honor sacred cows, Zell casually remarked that he would entertain offers to rename Wrigley Field, the venerated baseball park where the Chicago Cubs have struggled for success for more than 90 years.
"Based on [stadium] naming rights around the country," Zell said, "this would probably qualify as extraordinarily valuable."
Although Zell said he had no current plans to sell The Times or other major holdings -- beyond the previously announced sale of the Cubs -- he said "all assets are on the table" if the offer was right.
In a weakening economy with advertising sales dropping steadily, Tribune faces the stark possibility of being unable to generate enough cash to meet interest payments that initially are scheduled to exceed $1 billion a year. Zell initially invested $315 million in the deal.
Over the next 10 years, he said, if all Tribune accomplishes is to pay off its loans, he and the employees would be free-and-clear owners of an enterprise worth billions of dollars.
Zell has no newspaper or TV experience and offered few specifics on how the company might increase revenue. In the past, he has said newspapers give away too much of their content for free and has suggested pushing for licensing deals with Internet news aggregators such as Yahoo Inc. and Google Inc. He also has said he would consider pumping up the advertising sales force with more incentives.
Zell hinted that he could buy the company some breathing room by exploiting assets that he considered undervalued. For example, he said that Tribune's real estate portfolio, containing such iconic buildings as The Times headquarters in downtown Los Angeles and the Tribune Tower on Chicago's Magnificent Mile, is worth around $2 billion -- far more than others have estimated.
He said he would consider "the whole toolbox" of financial tactics, including mortgages, sale-leasebacks and tax-advantaged sales, to get the most out of the real estate.
Zell said he would challenge his new partners, the employees, to find creative ways to boost revenue and to cast off old attitudes, including what he called "journalistic arrogance." He said some journalists treat readers like students rather than customers, and the customers resent it.
For his part, Zell promised to deliver "openness, candor and no subtlety." Stealing an idea from stock brokerage pioneer Charles Schwab, Zell immediately established a "Talk to Sam" e-mail addressto facilitate employee feedback. He sent his first message within minutes of the closing.
Unlike Rupert Murdoch, whose News Corp. completed its controversial purchase of Dow Jones & Co. this month, and unlike Tribune's longtime overlord, the late Col. Robert R. McCormick, Zell said he had no interest in using his news outlets as his personal megaphone.
"It's not that I don't have opinions, and it's not that I don't feel strongly about things," he said, "but I didn't make this investment for any other reason than economic gain."
Joining Michaels on the management tier just below Zell will be Gerald A. Spector, who has served for years as the "organizational doctor" or business troubleshooter in Zell's real-estate empire and will continue in that function at Tribune. Michaels, chief executive at a chain of nine middle-market TV stations, will oversee the broadcast and interactive side of the business.
Times Publisher David Hiller will report directly to Zell, as will his Chicago Tribune counterpart, Scott Smith. Zell said he planned to give the local managers greater leeway to operate as they saw fit.
"I think in the past this company has been to a large extent top-down directed," he said. "I don't think that fits my philosophy. My philosophy is to delegate more responsibility so that I can therefore hold people more responsible. We want people making the decisions to be much closer to the action so that the viability and relevance of those decisions is much greater."
The new, eight-member board will also include William Pate, Zell's top lieutenant at his holding company, Equity Group Investments; telecommunications and cable-TV executive Maggie Wilderotter; Cincinnati media investor and former radio entrepreneur Frank Wood; and two holdovers from the existing board, Northern Trust Corp. Chief Executive William A. Osborn and McKinsey & Co. consultant and former Kraft Foods Inc. executive Betsy D. Holden.
Of his new board members he said, "There's nobody conventional."
He said each of the five new outside directors had impressed him in previous business dealings or other encounters. There was no word on whether other high-ranking Tribune executives would follow Chairman and CEO Dennis J. FitzSimons out the door. FitzSimons announced his resignation this week, effective at the end of the year.
Once it became clear in recent weeks that Zell intended to take the title of CEO as well as chairman, FitzSimons said he realized there was no room for him at the company where he had spent 25 years.
The current credit crunch, brought on by the sub-prime mortgage debacle, made Wall Street skeptical about the deal closing. At one point in October, Tribune's stock fell 25% below the $34-a-share buyout price.
A New York investor who initially was convinced that the deal would never close said Thursday that he finally reversed himself and bought Tribune stock because he was afraid of betting against Zell.
The investor, who declined to speak for attribution because his private fund likes to shun the limelight, said he expected Zell to quickly and skillfully sell "bits and pieces" to reduce the debt.
"Somebody's going to buy the Cubs for too much," the investor said. "Somebody's going to buy Wrigley Field for too much. He'll create an atmosphere of frenzy and sell assets for more than people expect."
Zell said he would not hold the chief executive's title indefinitely. In any case, he said: "I'm not really going to be the CEO. I'm going to be the owner, which is what I've consistently said this company desperately needs."
Mulligan reported from Chicago and Rainey from Los Angeles.