Nevertheless, in 2007, the Blackstone Group bought Mr. Zell’s firm—then known as Equity Office Properties Trust—for $39 billion. His own fortune was estimated at nearly $5 billion, and with holdings in residential properties, drug and department stores, and energy and electronics companies — a lifetime of acquisitions that made him one of the nation’s wealthiest men — he might have retired comfortably in his mid -60s.
But seeing yet another inefficient market, he plunged into the unfamiliar world of newspapers, winning a bidding war for one of the nation’s premier media companies, the 160-year-old Tribune empire. Besides the Chicago and Los Angeles newspapers, it included The Baltimore Sun, Newsday, The Hartford Courant, 23 television and radio stations, the Chicago Cubs and Wrigley Field.
A Deal Comes With Debt
Like many newspapers, the Tribune properties were hemorrhaging advertising revenues and readers to the internet. The company had been on the auction block for months when Mr. Zell—insisting that his interests were purely economic, not editorial—offered $34 a share in a complex transaction to take the company private under an employee stock-ownership plan.
He acquired control in December 2007 in an $8.2 billion deal whose financing required him to put up only $315 million, but that saddled the employee-owners with more than $13 billion in debt, including $5 billion in existing Tribune obligations. In that highly leveraged buyout, the debt was to be paid off almost entirely by cash generated by the company’s continuing operations.
The new corporation was exempt from federal income taxes, and the debt was reduced by the sale of Newsday, the Cubs and Wrigley Field. But employees, who had no say in the deal, assumed a crushing burden and stood to gain only if the company survived, while Mr. Zell, for a relatively modest investment, became chairman and secured an option to buy 40 percent of the company for $500 million if it prospered.
Employees filed a barrage of lawsuits, but they had little effect, and the transaction was widely denounced by media commentators as lopsided — a potentially lucrative coup for Mr. Zell at the expense of thousands of employees, whose jobs, careers, pensions and futures had been mortgaged under a mountain of debt.
Floyd Norris, in a commentary in The New York Times, called it “one of the most absurd deals ever,” adding: “If the company falters, the workers could find that they have no jobs, and a lot of company stock that has little value. Most of Mr. Zell’s investment will be classified as a loan to the company, giving him a chance of recovering money even if the stock becomes worthless.”