The Deal from Hell (55 page)

223
The dispute came to a head in May 2006
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141. Deposition of Dennis J. FitzSimons, Chicago, IL, June 25, 2010. The contemporary history of the Tribune's financial problems were spelled out in detail in this voluminous report.

224
But the move infuriated the Chandlers
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141 and author's telephone interview with Thomas Unterman, March 2011.

224
William Stinehart, who publicly filed a blistering eleven-page
Letter from William Stinehart, Jr., former director of Tribune/trustee of the Chandler Trusts to Tribune Company Board of Directors, June 13, 2006. The 11-page letter castigated Tribune managers, harshly criticizing them for lack of vision and strategic failures in running the company. The letter, in effect, put the company up for sale.

226
Smith and FitzSimons summoned Johnson
Author's interview with Jeffrey Johnson, Los Angeles, CA, winter 2011.

227
rumors emerged of a “suicide pact” between
“Baquet's Billionaire Boys Club,” by Nikki Finke, Deadline Hollywood,
LA Weekly
, September 2006. Finke's widely read column reported on a suicide pact, but the three editors involved said there was no such thing and none resigned.

227
“I didn't need Gerry Kern to make . . .”
Author's interview with Leo Wolinsky, Los Angeles, CA, fall 2010, and by telephone, 2008–2010.

231
Baquet stood before the
“
Los Angeles Times
Editor Urges Others to Fight Cuts,” by Katherine Q. Seelye,
New York Times
, October 2006.

233
He seemed thrilled to see me
During his 15 months as editor of the
Los Angeles Times
, the author kept a diary in which he recorded key events and exchanges. Many
of the recollections and quotes from his time as editor came from this diary. The author usually recorded entries in the diary the same day that they occurred.

237
“When people complained, I always . . .”
Author's recollection of conversation with John Madigan.

239
In Baltimore, a wealthy hedge-fund investor
Letter from Bruce S. Sherman to Board of Directors, Knight Ridder, Inc., November 1, 2005. Bruce Sherman wrote to the board of directors on behalf of Private Capital Management, LP, Knight Ridder's largest shareholder. His letter triggered the sale of the company.

239
including the
Minneapolis Star Tribune
“Private Group Buys Start Tribune,” by Matt McKinney,
Minneapolis Star Tribune
, December 27, 2006.

251
a story about huge bonuses being
Author's memo to the staff of the
Los Angeles Times
, April 23, 2007.

252
he said,“and I'm not too impressed.”
Author's recollection of meeting with Dennis FitzSimons.

253
Not long after I had walked into
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

253
In private, the Chandlers had hinted they might
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of William Stinehart, Jr., former director of Tribune/trustee of the Chandler Trusts, Los Angeles, June 28, 2010.

254
Tribune Company posted robust 2006
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141. The examiner's report contains extensive financial information on the Tribune Company, compiled from company reports as well as from company analysts and banks.

254
In his letter, Stinehart outlined a
Letter from William Stinehart, Jr., former director of Tribune/trustee of Chandler Family Trusts to Tribune Company Board of Directors, June 13, 2006.

254
The acrimony with the Chandlers didn't end
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

255
The Tribune's Special Committee hired Morgan Stanley
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

255
Overall, Tribune investment bankers
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

255
Tribune employees owned 11 percent of
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

256
to the tune of an unusually high $10 million, a large
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; and deposition of William A. Osborn, May 16, 2007.

256
Morgan Stanley would try to muscle its way
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

256
“Always said the banking intramurals . . .”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; and e-mail from Crane H. Kenney, general counsel, Tribune Company, to Michael R. Costa, former managing director, mergers and acquisitions, Merrill Lynch, February 24, 2007.

256
At one point, the Chandlers considered selling
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; and examiner's interview of William Stinehart, Jr., former director of Tribune/trustee of the Chandler Trusts, Los Angeles, June 28, 2010; and deposition of Dennis J. FitzSimons, Chicago, IL, June 25, 2010.

257
“We looked out and saw a ski slope,”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of William Stinehart, Jr., former director of Tribune/trustee of the Chandler Trusts, Los Angeles, June 28, 2010.

257
The mere thought of doing a deal with
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of Julie H. Persily, formerly with the Citigroup Leveraged Finance Department, New York, NY, July 8, 2010.

257
He had just sold his Equity Office Properties
“Update—Zell Sells for $39 Billion,” by Scott Reeves,
Forbes
, November 20, 2006.

258
A
Chicago Tribune
magazine article
“Here's the Deal; How Sam Zell Beat a Tax-Fraud Rap and Rose to the Top of the Real Estate World,” by Greg Burns,
Chicago Tribune
, July 25, 2004.

258
To put together a bid, Zell activated an
Author's interview with confidential source from Equity Office Properties. The source spoke with author under the condition of anonymity.

259
While at law school at the University of Chicago
Author's interview with confidential source from Equity Office Properties. The source spoke with author under the condition of anonymity.

259
A few years before, Zell had invested in a waste
“Invest Like a Billionaire: Sam Zell,” by Tatiana Serafin,
Forbes.com
, November 9, 2006. The author also learned of details of the ESOP and Covanta transaction from a confidential source at Equity Office Properties.

260
A mere five days later, Bartter
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of Brit Bartter, then vice chairman of investment banking group at JPMorgan Chase, Chicago, IL, June 16, 2010.

260
Zell's proposal had some intriguing benefits, too.
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141. Zell and others at Equity Office Properties spelled out the details of the proposal to the examiner.

260
“What was novel was that it was an S-Corp....”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

260
Some bankers involved in the deal were cool to the idea.
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

261
Christina Mohr, a managing director in Citigroup's
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; e-mail from Paul Ingrassia, managing director, Citigroup, to Christina Mohr, February 20, 2007.

261
When Costa, the Tribune's
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

262
Any plan would require approval by the Federal Communications Commission (FCC) because
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

262
But Zell had an answer
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

262
Mohr recalled how
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

262
Zell, who called Tribune General Counsel Kenney and demanded
Author's conversation with Crane Kenney in Los Angeles, 2007. The author noted the conversation in his diary.

262
“Marty called me one morning and said . . .”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; deposition of Dennis J. FitzSimons, Chicago, IL, June 25, 2010.

263
the Zell proposal until Osborn
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; deposition of Dennis J. FitzSimons, Chicago, IL, June 25, 2010; and examiner's interview of Samuel H. Zell, Chicago, IL, June 14, 2010.

263
But Morgan Stanley's Whayne
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of Thomas Whayne, managing director, Morgan Stanley, New York, NY, June 11, 2010.

263
Costa pushed back saying they should be “more aggressive.”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

263
“The banks were climbing . . .”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; deposition of Crane H. Kenney, former General Counsel of Tribune, Chicago, IL, July 8, 2010.

264
In late March, Zell broke
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

264
“That's how I got comfortable. At the end of the . . .”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

264
At the last minute, Zell also cut
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

264
There was no end of whooping
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; e-mail from Sanjay Jain, vice president, JPMorgan Chase, to Peter Cohen, managing director, JPMorgan Chase, April 2, 2007.

264
“Guys—truly amazing financial . . .”
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; Merrill Lynch inter-office e-mail from Chris Cormier to John Eidinger and Michael Costa, April 6, 2007.

265
But Jieun (Jayna) Choi, an analyst at
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; JPMorgan Chase interoffice e-mail from Jieun ( Jayna) Choi to Goh Silew Tan, April 5, 2007.

265
For their work over six months
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141. The author computed the fees from data disclosed in the examiner's report.

265
By now, FitzSimons had climbed on
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; deposition of Dennis J. FitzSimons, Chicago, IL, June 25, 2010.

265
The way he saw it, Tribune's assets
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; examiner's interview of Samuel H. Zell, Chicago, June 14, 2010.

267
anything that adds juice to a column
“Public's beach is a beauty, but try to find it,” by Steve Lopez,
Los Angeles Times
, April 6, 2007.

269
On June 4, 2007, JPMorgan Chase
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

269
have driven the company's stock
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141. The report contained numerous estimates of what would happen if the deal had not closed, including one from Lehman Brothers that was particularly negative. That report suggested that the Tribune's stock could have fallen to below $10 per share.

272
Both Baquet and Carroll agreed that
Author's telephone interview with John Carroll, summer 2009; and Dean Baquet, winter 2010.

272
a report that called for a vigorous renewal of time
The Spring Street Project Report,
Los Angeles Times
, December 1, 2006. The report, which was initiated by Baquet, was an 11-page summary of the Spring Street Team's visits to other newspapers, web operations, research, and consulting offices including: Yahoo!, America Online, Technorati, and an interview with craigslist founder, Craig Newmark.

278
The loans gave Zell the money he needed
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

278
The Chandlers didn't help things.
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141.

279
Jill Greenthal, a Blackstone Group
United States Bankruptcy Court, Report of Examiner, Kenneth M. Klee, Case Number 0813141; e-mail from Jill Greenthal, et al., to John Madigan, June 4, 2007.