Sam Zell Speaks His Mind

Zell looks back—and forward—on his debt-heavy takeover of media giant Tribune Co. Yes, the deal might be in trouble. But he has no regrets

Sam Zell has owned a lot of things since he began investing in real estate 40 years ago: radio stations, cruise ships, pay phones, mobile-home parks, barges, wire and cable factories, and power plants that generate electricity from garbage. Last December, he added nine daily newspapers, 25 TV stations, about 50 Web sites, and the Chicago Cubs to his portfolio when he took over media conglomerate Tribune Co. The deal hasn't gone nearly as well (BusinessWeek, 7/30/08) as the billionaire had hoped. With newspaper revenue plunging two to three times faster than he had forecast, and big debt payments looming, Zell has laid off more than 1,100 employees, or 6% of personnel, and sold a string of assets including one of Tribune's biggest papers, New York's Newsday, which fetched $650 million. Now, he's analyzing bids for the Cubs and Wrigley Field that may hit $1 billion.

Zell, 66, recently reviewed what he's called "the deal from hell" with BusinessWeek Senior Correspondent Michael Arndt and Senior Writer Emily Thornton. They met in Zell's sixth-floor office in downtown Chicago, which looks onto his own private garden, where he often ducks out for a smoke. He wore his trademark work duds: a collarless white shirt open at the neck, crisply ironed blue jeans, and slip-on leather shoes. Here are excerpts from their conversation:

Will this be your best or worst deal?

If I knew the answer to that question, I wouldn't have to waste time talking to you. I think the way this deal is put together, we could get very lucky. On the other hand, if current trends in advertising are permanent, we have a really serious problem.

You've said you met with every publisher in the country before you did this deal, like Brian Tierney and Mortimer Zuckerman. Is there anything they forgot to tell you?

Yeah, that advertising revenue was going down 20% in the first quarter of 2008. Not one of them told me that.

And that it would continue to go down in the second quarter?

They didn't tell me that either.

How have you had to change your plan because of this falloff?

We started out saying, "big Christmas and a slow January." Then we started seeing trends we didn't expect. We started pulling together a crisis strategy to go forward to implement our programs, but much more quickly than we had anticipated.

The speed at which we did the Newsday deal was a response to that. But the acceleration of all of our 2010 plans is about as big a response as you can possibly imagine. What we're doing right now in reformulating all of the newspapers—we would have preferred to have done that slower and over a much longer period of time. The original timeframe was 2010. Basically, we've taken those plans and brought them forward to 2008.

You paid 9 to 10 times annual cash flow for the company. Looking back, was that overvaluing Tribune?

Oh, looking back, for sure it was overvaluing it.

Knowing what you know now, would you still have done this deal?

The way I answer everyone with questions like that is that my head doesn't do a 180. I only look forward. I have no remorse about anything.