Tribune marks one of Zell's rare misses

NEW YORK, Dec 8 - When real estate mogul Sam Zell said in February 2007 that he would buy the Tribune Co, real estate investors wondered why he would buy a media company.

Zell was fresh from his stunning success selling Equity Office Properties Trust for $23 billion, plus debt, in one of the biggest merger and acquisition deals ever. Why would he want to become a major player in the struggling newspaper industry, investors asked.

Some said vanity. Others said he was used to turning around distressed properties.

"Timing is everything," said John Morton, president of Morton Research Inc, a media consulting group. "He timed when to get out of real estate at the perfect time, and he probably timed when to get into newspapers at the worst time. But how can you know?"

On Monday, the steep decline in print advertising in newspapers, coupled with the global credit crisis and deepening U.S. recession prompted Tribune to file for Chapter 11 bankruptcy protection.

"He's made a lot of smart moves," said Shawn Campbell, a long-time investor currently focused on buying distressed real estate assets. "He's a very rich man. Nobody's perfect."

Zell made his mark as a contrarian. He became known as the "grave dancer" for buying properties at depressed prices in the early 1990s, a bad time for the U.S. real estate market.

Zell, who favors baseball caps, motorcycles, blue jeans, Italian white shirts and swearing, was ranked by Forbes magazine in September as the 68th richest American with a net worth of $5 billion.

During the holiday season, he sends bronze statues to his close business associates. The statues contain Zell's recorded message and sometimes a song about the real estate market.

He earned a law degree from the University of Michigan, and endowed the Samuel Zell/Robert Lurie Real Estate Center at the University of Pennsylvania's Wharton Real Estate Center.

Zell took Tribune private in December 2007 in an $8.2 billion leveraged buyout that restructured the publisher of the Los Angeles Times and Chicago Tribune as an employee-owned company, saddling it with more than $10 billion in debt. He contributed $315 million to the deal.

TIMING IS EVERYTHING

The deal was completed as the world was sinking into the worst financial crisis since the Great Depression. "There's no one that has come out of this thing looking to good, is there?" said Campbell, referring to other investors who used lots of debt to buy companies.

Although Zell is known for his golden touch in such deals as the Equity Office sale in 2007 to Blackstone Group, this is not his first miss.

In 2001, after the tech bubble burst, Equity Office bought Spieker Properties, based in Menlo Park, California, for about $7.2 billion plus the assumption of debt. Zell, who founded Equity Office, was its chairman. But property values in the area cratered as tech-related tenants folded.

Spieker's dismal performance weighed on the whole company, and Equity Office's share price did not recover until the 2006 bidding war for it between Blackstone and Vornado Realty Trust .

"For real estate types, that has always been seen as a poor deal," Green Street analyst Michael Knott said.

Shortly after Zell bought Tribune Co, billionaire Warren Buffett wrote in his annual letter to shareholders: "Aspiring press lords should be careful," he wrote in his annual letter to shareholders. "There's no rule that says a newspaper's revenues can't fall below its expenses, and that losses can't mushroom."