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Tribune Accepts $8.2 Billion Bid from Real Estate Mogul

April 2, 2007 at 6:25 PM EST
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TRANSCRIPT

GWEN IFILL: After a six-month auction that climaxed in a weekend bidding war, the Chicago-based Tribune Company accepted an $8.2 billion buyout from hometown real estate magnate Sam Zell. The deal beat out a similar offer from two other billionaires, Los Angeles-based Eli Broad and Ron Burkle.

The Tribune sale marks the second time in a year that worried investors have forced the sale of a major American newspaper company. Last March, the venerable Knight-Ridder Newspaper chain, owner of the Miami Herald and Charlotte Observer, was purchased by the McClatchy Company, a smaller publisher.

The 160-year-old Tribune Company, America’s second-largest publisher, will be taken private by Zell, who has never run a newspaper. Tribune’s marquee holdings include its namesake, the Chicago Tribune; the Los Angeles Times, which Tribune acquired in 1999; along with New York’s Newsday; the Baltimore Sun, and the Hartford Courant in Connecticut.

In addition, Tribune also owns 23 television stations and Chicago-based superstation WGN. Tribune’s Internet properties include Careerbuilder.com and Cars.com. Tribune also owns baseball’s long-suffering Chicago Cubs.

ANNOUNCER: Lee is running. Ramirez takes high. Throw down, the tag, and they’ve got him. And that is all for the Cubs in the first.

GWEN IFILL: The company announced today, on Opening Day, that the Cubs will go on the block after this season.

Readers and advertisers have been leaving print for the Internet, creating a crisis in the newspaper industry. Tribune was not immune. The company put itself up for sale last fall as its stock price plummeted. Financial and staff cutbacks followed.

Two top managers at the Los Angeles Times, editor Dean Baquet and publisher Jeff Johnson, resigned rather than make those cuts. Both argued that shedding staff would lead to shoddy journalism.

The Grave Dancer

Frank Ahrens
The Washington Post
[A]t the end of the day, it's a publishing business or it's a broadcasting business. And that's what Zell is looking at.

GWEN IFILL: With me to discuss the potential impact of the Tribune sale is Frank Ahrens, media and entertainment industry reporter for the Washington Post.

What does this sale tell us about the health in general of the newspaper industry?

FRANK AHRENS, The Washington Post: Well, what it tells you is the nickname of the newest member of the newspaper owners club is nicknamed the Grave Dancer.

GWEN IFILL: What does that mean?

FRANK AHRENS: It means that Sam Zell has made a long and profitable career by identifying properties and business sectors that have been overlooked, that have been given up for dead by others, buying in at bargain-basement prices and building them up, extracting their profits, selling them off.

GWEN IFILL: Is a newspaper deal, where people think of newspapers somehow as some icons of the community, is that kind of a corporate deal different than a normal corporate deal?

FRANK AHRENS: Actually, it's really not, and that's what has most people like you and me and so forth worried, is that many people in the industry have the feeling -- I mean, we got into this, many of us, for almost religious reasons.

But at the end of the day, it's a publishing business or it's a broadcasting business. And that's what Zell is looking at. He's looking to acquire an industry that, even though it's not growing the way it was and its stock is not rising on Wall Street, it still, as they say, throws off a lot of cash. It makes 15 percent, 20 percent profit margins not infrequently.

GWEN IFILL: Tell us some more about Sam Zell, the grave dancer. Tell us about -- he has never had any experience in the news media before. So what is it that people can expect?

FRANK AHRENS: A telling story about Sam Zell, who's 65, he's a Chicago hometown guy, he likes to ride motorcycles with his rich buddies all over the world. They call themselves the Zell's Angels. He's a very aggressive kind of guy.

He started in real estate, where he made all of his money, almost all of his money as an apartment manager in college, and he built up a real estate empire out of that.

An interesting story about him was he decided to get into radio in 1992 when the market wasn't doing so well. He bought into some tiny, little, almost bankrupt radio stations in Cincinnati for about $70 million. And six years later, after he saw the wave of consolidation coming, turned those stations over for $4.4 billion.

Cost-cutting in the industry

Frank Ahrens
The Washington Post
One of the big problems the newspapers have faced in the past several years is that most of them have been public companies. And if you're a public company, you're required to do quarterly reports, hit quarterly numbers, estimates.

GWEN IFILL: Is it fair to say that, in spite of the profit margins you just alluded to a few minutes ago, that the cost-cutting which has caused so much angst within the industry is going to continue?

FRANK AHRENS: Well, here's the thing. For many years, newspapers particularly enjoyed a kind of almost monopoly status in the markets that they existed in. They had the lock hold on advertising. They didn't have a lot of competition. They could pretty much charge the rates they wanted. And staffing decisions in newsroom journalism decisions were made solely based on needs or desired coverage areas.

Now they're starting to have to be made, for the first time in many cases, on hard, cold business reasons, the way that every other business has had to operate.

GWEN IFILL: Well, now there will be a certain difference in transparency now that the company has gone private. What difference does that make?

FRANK AHRENS: Well, the difference is that it pulls it out of the Wall Street spotlight. One of the big problems the newspapers have faced in the past several years is that most of them have been public companies. And if you're a public company, you're required to do quarterly reports, hit quarterly numbers, estimates. And they've been falling short, and their stock has been punished by Wall Street for that.

This pulls them out of that. It allows them, if they do it right, to focus on more long-term goals for the company. Of course, the creditors will still get their money, but in theory it should be a less frenetic quarterly cycle.

Keeping the company intact

Frank Ahrens
The Washington Post
Zell said in an interview with the Associated Press a couple weeks ago he wants to keep the company intact. That's fair. That's what we have to take him on right now.

GWEN IFILL: As this has been building, this drama involving the Tribune companies, there was a local group of Hollywood-types who wanted to buy the Los Angeles Times and a local group in Baltimore who wanted to buy the Baltimore Sun. Is Sam Zell going to keep all these properties intact?

FRANK AHRENS: Zell said in an interview with the Associated Press a couple weeks ago he wants to keep the company intact. That's fair. That's what we have to take him on right now.

However, this deal is going to be, as they say in the industry, highly leveraged, lots and lots of debt. One newspaper executive I talked to today pointed out that it's going to be something like 10 times the debt to the cash flow, which is twice as much debt as most other newspaper companies have. That may mean he may have to sell properties to get that debt down, such as the Cubs was the first one.

GWEN IFILL: Well, and I want to get back to the Cubs in a minute, but you're talking about the properties he might have to sell. Are their cross-ownership issues in some markets where he owns, say, a television station, as well as a newspaper?

FRANK AHRENS: There well could be. Yes, Tribune strategy for much of the '90s was the cross-ownership strategy, have a big newspaper and a big television station in the top markets. And it did it in New York, Chicago, Los Angeles, worked to do that.

The FCC has this rule -- it's a longtime, a 30-something-year rule that prohibits, in theory, such cross-ownership. The Tribune had had waivers to allow these to go on. Tribune has been working very hard to get this waiver lifted.

It's unclear if they will get it lifted. It's unclear if the FCC will actually allow this. On the other hand, if Zell works his bid right -- this is an employee stock ownership plan. And he may actually own less than the majority in the long term. Therefore, he wouldn't have to reapply for the waivers. So it's something to see down the line.

Selling off the Cubs

Frank Ahrens
The Washington Post
Zell already owns a piece of the Chicago White Sox. And probably Major League Baseball wouldn't be terribly happy to have one guy in the same town owning pieces of two clubs.

GWEN IFILL: OK, let's talk about those Cubbies. Not only did the Tribune Company own the Cubs, but they also own Wrigley Field, the land under the Cubs. Do we know why he is selling the Cubs, first off, and whether Wrigley Field goes with it?

FRANK AHRENS: I think there are a number of reasons to sell the Cubs. A, they'll probably fetch anywhere from $580 million to maybe as much as $700 million, depending on how people value that big contract that they gave Alfonso Soriano in the off-season.

Secondly, Zell already owns a piece of the Chicago White Sox. And probably Major League Baseball wouldn't be terribly happy to have one guy in the same town owning pieces of two clubs. And, like I said, it's an easy asset to get rid of it, and it's an easy way to pay down some debt real quickly.

GWEN IFILL: Now, all this said, this is not a done deal yet. There are still a couple other things which have to happen down the road for Sam Zell to actually make this happen.

FRANK AHRENS: Yes, it has to have shareholder approval. The biggest and most contentious shareholder group has been the Chandler trust. They own 20 percent of Tribune, and they have three seats on the board. They were the longtime Los Angeles Times family. They built Los Angeles as much as they built the Los Angeles Times and came into the Tribune family when Tribune bought the Times company in 2000.

They said in the release today they would support this sale, so that's one big hurdle. They want to cash out, and this enables them to cash out. And then the regulatory hurdles that we talked about.

GWEN IFILL: Are the Los Angeles buyers, however, potentially still in the wings on this?

FRANK AHRENS: Well, there is a small caveat in this deal that will pay Sam Zell a $25 million so-called break-up fee, because it allows the Tribune board to solicit a better offer before this one closes, so they can still shop around a bit within very tight constraints.

It seems unlikely that would happen. It looks like they've cast their lot with Zell. But if they do end up with somebody better, he gets a nice $25 million fee.

GWEN IFILL: Frank Ahrens of the Washington Post, thanks a lot.

FRANK AHRENS: Thank you, Gwen.