Over-Zell-ous? Real Estate Mogul Felled by Media Biz

Real Estate Empire to Media Takeover

What Zell began in Ann Arbor he eventually built into a real estate empire. In 2006, while the real estate market was still strong, he sold part of that empire for $39 billion.

"He's a gambler, he's a smart guy and he made a lot of money in real estate by guessing where these trends were going with commercial properties," said Christopher Mackin, the president of the strategy consulting firm Ownership Associates in Cambridge, Mass.

But, Mackin said, Zell's "judgment of what was going on with the [media] industry was wrong."

It wasn't just Zell's timing that was off, critics say. Zell's deal to take over Tribune saddled the corporation with more than $8 billion in new debt that it is now struggling to pay off.

"He certainly took out a substantial amount of debt made on certain assumptions that have not come true," said Lunzer of the Newspaper Guild.

The deal also relied heavily on an employee stock ownership program that scuttled the company's practice of matching employee 401(k) contributions with cash to matching it with Tribune stock.

As a result, "many employees will have a retirement fund that is heavily invested in a company that is overly encumbered with debt," according to the lawsuit filed against Zell in September. (An automated recording on the Tribune's employee benefits hotline number said that employees' 401(k) accounts are not affected by the bankruptcy filing.)

But there was more that raised Tribune employees' ire about their new boss: After initially saying he didn't support the idea that layoffs at newspapers were the way to address drops in revenue -- a statement that employees met with applause during a meeting at the Tribune-owned Hartford Courant in Connecticut -- Zell ultimately slashed more than a thousand Tribune Co. jobs.

"The reality is, what's my choice?" Zell asked during a conference call with reporters, the Hartford Courant reported in July. "Do I try and create a business that can be viable and preserve two-thirds of the jobs? Or do I let all 100 percent of them go by the wayside because I'm not willing to confront the realities of the environment?"