Bloomberg News

Tribune Retirees, Deutsche Bank Sue Shareholders Over Buyout

June 03, 2011

(Updates with judge’s order in 11th paragraph.)

June 3 (Bloomberg) -- Former shareholders of Tribune Co. were sued by a Deutsche Bank AG unit and retirees over claims that the media company’s $8.5 billion leveraged buyout was a fraudulent transfer that pushed it into bankruptcy.

The unit of Frankfurt-based Deutsche Bank sued dozens of shareholders, brokers and other defendants yesterday in at least 11 states on behalf of Tribune’s pre-buyout noteholders. Those creditors and others in the lawsuit are owed at least $2.5 billion that can’t be repaid in full because of the 2007 deal, Deutsche Bank Trust Company Americas said.

“The LBO lined the pockets of Tribune’s former shareholders with $8.5 billion of cash at the expense of Tribune’s creditors, and precipitated Tribune’s careen into bankruptcy,” Deutsche Bank Trust said in the complaints. It asks to recover money paid to shareholders that creditors labeled “fraudulent transfers.”

The cases are part of the strategy devised by Aurelius Capital Management LP, which owns Tribune notes issued before the buyout. The New York-based hedge fund proposed a reorganization plan that would use lawsuits against shareholders, lenders that funded the buyout and others to collect what pre-buyout creditors are owed.

Tribune, based in Chicago, proposed a competing plan that is sponsored by JPMorgan Chase & Co. and two hedge funds, Angelo Gordon & Co. and Oaktree Capital Management LP. Their plan also relies on lawsuits, while settling most claims against the buyout lenders, including New York-based JPMorgan.

Retirees’ Suit

Bank of America Corp., Goldman Sachs Group Inc. and Scottrade Inc. were among defendants named in the retirees’ complaint, which seeks $109 million. Yesterday’s lawsuits were the first of a group of cases authorized in March by Tribune’s bankruptcy judge. The targeted firms sold Tribune shares for themselves or on clients’ behalf as part of the buyout.

“Tribune, pressured by its majority shareholders and lured by a scheme orchestrated by Sam Zell, abandoned its duties and obligations to its retirees, employees and creditors,” according to the retirees’ complaint filed in New York state court in Manhattan.

Courts have ruled that a fraudulent transfer of money takes place when the people involved know that a deal will enrich one side and leave the other insolvent.

Competing Plans

U.S. Bankruptcy Judge Kevin J. Carey is scheduled to hear closing arguments about the two competing reorganization plans on June 14. He authorized the current round of suits in March.

Carey also issued an order requiring that, once the cases were filed, no further activity take place without his permission. The suits were filed to beat a deadline of June 4, when a four-year statute of limitations runs out.

Zell, a real estate investor, led the buyout using more than $8 billion in loans to take the publishing company private. The billionaire, who has been named in similar lawsuits, has repeatedly denied that creditors have any legal basis for suing him. Tribune, which owes about $13 billion to creditors, is valued at about $6.75 billion, according to court records filed by the company.

Bill Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, and David Wells, a spokesman for New York-based Goldman Sachs, declined to comment yesterday on the retirees’ lawsuit. Carrie Hibbs, a spokeswoman for St. Louis- based Scottrade, said she couldn’t comment.

Harvard University in Cambridge, Massachusetts, was among the defendants named in the Boston case. A phone message left at the school’s media office wasn’t returned.

Times Mirror

Most of the retirees who sued were employed by Times Mirror Co., the former owner of the Los Angeles Times, before it merged with Tribune in 2000. Tribune owns eight newspapers, including the Los Angeles Times and the Chicago Tribune, with a combined daily circulation last year of 1.9 million.

The company also has 23 TV stations, including broadcasters in the three biggest U.S. markets -- New York, Chicago and Los Angeles. Tribune filed for bankruptcy in December 2008 saying it was hurt by the recession and competition from the Internet.

The company’s 5 1/4 percent bonds due in 2015 fell 4.5 percent today to 51 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The Philadelphia cases are Deutsche Bank Trust Company Americas v. Commonwealth of PA-PSERS, 11-03570, and Deutsche Bank Trust Company Americas v. Ametek Inc. Employees Master Retirement Trust, 11-03569, both U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

The Boston case is Deutsche Bank Trust Company Americas v. Anne G. Taylor, 11-10982, U.S. District Court, District of Massachusetts (Boston). The retirees case is Niese v. AllianceBernstein LP, 651516/2011, Supreme Court of the State of New York, New York County (Manhattan). The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).

--With assistance from Janelle Lawrence in Boston, Edvard Pettersson in Los Angeles, Karen Freifeld in New York and Dawn McCarty in Wilmington, Delaware. Editors: Stephen Farr, Michael Hytha.

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net; Sophia Pearson in Philadelphia at spearson3@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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