Media `opportunist' knocks

Zell's Tribune bid reflects upbeat view of newspapers

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March 27, 2007|By New York Times News Service

Samuel Zell's first foray into publishing came when he was in high school in the 1950s. He would visit the magazine vendors under the El tracks in Chicago and buy up copies of Playboy for 50 cents. Then he would go home to the suburbs and sell the magazines to his pals for three or four times what he paid.

"I see markets," he once said in an interview with CNBC, recalling that venture. "I've always been intrigued by inefficient markets."

Zell, who went on to make billions in real estate, is seeing inefficient markets once again, this time in newspapers. He is in the midst of negotiations with the Tribune Co., which owns some of the nation's most storied dailies, including The Sun, the Los Angeles Times and the Chicago Tribune. It also owns 23 television stations and the Chicago Cubs.

The company has been on the auction block since September. A few anemic offers came its way, but a special Tribune committee spurned them and began working on a plan to restructure the company itself. Then in February Zell entered the picture, and over the past month the committee has run hot and cold on the brash Chicago tycoon as it seeks to wrap up a deal by the end of this month.

As of the latest temperature-taking, the committee was warming back up.

According to published reports this weekend, the committee now favors Zell's bid, which was revised last week. His proposal, which would take Tribune private, would be financed by a combination of cash and an employee stock ownership plan (ESOP).

The Tribune committee is scheduled to meet again late this week, leaving the opportunity for other bidders, including Zell's fellow real estate billionaire Eli Broad and his partner, Ronald Burkle, to increase their offers.

Zell, 65, has said that he would get into the media business not because he has any particular affection for newspapers or wants to wield editorial control, but because he wants to make money.

He called himself "an opportunist" last week in an interview with the Associated Press, adding: "I probably am not as pessimistic about the future of the newspaper business as others might be."

Others certainly are pessimistic and became more so last week when most big public media companies, including Tribune, reported a striking decline in ad revenues for the month of February in yet another sign of the industry's current struggles. Zell has a history of buying into distressed or undervalued businesses, so much so that he once nicknamed himself "the grave dancer."

But while he likes to think of himself as one of the savants of the real-estate industry, not all of his bets in recent years have paid off. For example, his effort to capitalize on a national network of business properties didn't pan out as expected.

Zell was raised in Chicago, the son of Polish refugees. His father, Bernard, who changed the family name to Zell from Zielonka, became a successful wholesale distributor of jewelry and watchbands and sent his son to the University of Michigan.

Even as a child, Samuel Zell was ambitious. "He's very smart, very savvy, very competitive, and very aggressive, whether on the sports field, playing a board game, or in anything else," said Robert M. Berger, a Chicago lawyer who first met Zell when they shared a bunk at a Wisconsin summer camp at the age of 11.

While a student at Michigan, Zell began buying substandard housing units, fixing them up and renting them to other students.

After college and law school, also at Ann Arbor, Zell began buying property elsewhere, including Toledo, Ohio; Tampa, Fla.; and Reno, Nev. He and a fraternity brother, Robert Lurie, later formed a partnership and, through tax advantages and heavy borrowing, quickly grew into a major force in real estate.

Lurie died in 1990, while Zell's Equity Office Properties Trust grew into the largest office landlord in the country. He sold it last month for $39 billion to the Blackstone Group in the biggest leveraged buyout ever. Even before that deal, Forbes estimated Zell's worth at about $4.5 billion.

His investments have ranged widely over a variety of enterprises, including cruise ships, trailer parks and radio stations. His biggest media deal so far was his purchase of Jacor Communications, a radio business, in 1993.

He and his partners went on a buying spree, building one of the nation's biggest radio chains, with a talent roster that included Rush Limbaugh and Laura Schlessinger. In 1999, the company was sold to Clear Channel Communications.

But he made his biggest mark in real estate and considers himself a master of the real estate investment trust, or REIT. He aggressively acquired other companies and built up a huge national portfolio on the theory that corporate tenants would welcome the chance to buy office space across the country in one deal.

But analysts said that Equity Office never proved that national branding could work because tenants generally pick their office space based on location, the configuration of the space and other factors, not on the landlord.

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