How Zell Killed Tribune

When Samuel Zell outbid two other billionaires, Eli Broad and Ronald Burkle, for Tribune Co. last year, he was hailed as a dealmaker.

For just thinnest possible sliver of equity--some $300 million--he landed an $8.2 billion empire featuring the Chicago Cubs, a host of television stations and two of the most important newspapers in America: The Chicago Tribune and Los Angeles Times.

"I am delighted to be associated with Tribune Company, which I believe is a world-class publishing and broadcasting enterprise," Zell said back in April 2007, announcing the deal. "As a long-term investor, I look forward to partnering with the management and employees as we build on the great heritage of Tribune Company."

Monday was a different story. Tribune declared bankruptcy in Delaware. Against assets allegedly worth $7.6 billion, Tribune Co. owes $13 billion. The "grave dancer" of real estate development was now the "grave digger" of the newspaper world.

Bad economy or not, if it wasn't for Zell and the enormous debt load he packed on the company, Tribune Co. would be trundling along profitably. It hauled in operating cash flow--which is net before taxes, depreciation, amortization and interest--of $90 million on $1 billion in revenue in the third quarter. In the six quarters before that, Tribune Co. was hauling in $200 million to $270 million per quarter in cash flow.

Sure, lots of that comes from the company's sports and broadcast arms. But even Tribune's publishing group, which includes those oh-so-old-fashioned newspapers, pulled in $13 million in operating cash flow on $654 million in revenues last quarter.

Zell blew it by treating the purchase of this august newspaper company like, well, like just another real estate development. There's an age-old strategy in development. Borrow every dime you can, build as high as you can and hope it's all sold by the ribbon cutting. It works brilliantly in a rising market. But as Donald Trump is demonstrating now in his lawsuits with the lenders who paid for his $750 million hotel-condo tower on the Chicago River, it gets ugly when recession hits.