As Charles Prince, then-chairman of Tribune Co. financier Citigroup Inc., told the Financial Times in July 2007, "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

Pressure at the top

For Chicagoans, the corporate drama that unfolded inside Tribune Tower on Michigan Avenue would have been unthinkable when the first rumblings of a crisis appeared in 2006.

Not only was Tribune Co. a financially sound pillar of the Chicago corporate establishment, its history and the city's were tightly interwoven. The company's flagship newspaper traced its influence to a heritage that included the declaration "Chicago SHALL rise again" after the 1871 fire, and through the years the newspaper was a reliable booster of commerce and Republican politics. Dennis FitzSimons, who became Tribune Co.'s chief executive in 2003, enjoyed the support of his board. And big blocks of Tribune Co. stock rested in friendly hands, including the Robert R. McCormick Foundation, a company-affiliated charity.

But one early lesson of the Tribune Co. saga was that no CEO or company is insulated from the sweeping power of modern financial markets. By 2006, FitzSimons had come under pressure from an assortment of anxious shareholders fed up with a stock price that had languished for two years.

Tribune Co.'s newspapers and its television stations were suffering from the profound changes in advertiser behavior that were starting to rock the entire media industry. FitzSimons had seen the company's stock price rise to a peak of around $52 a share in 2004. By April 2006 it had plummeted 46 percent.

A native of Queens, N.Y., FitzSimons had risen through the television business to become one in a long line of conservative, by-the-numbers corporate chieftains who had run Tribune Co. over the decades.

He had surrounded himself with a proud group of mostly homegrown managers who were well-regarded on Wall Street for their ability to produce results. Yet as advertisers started defecting from traditional media properties, critics began to see shortcomings in FitzSimons and his team.

They charged that he lacked a bold vision for how to transform the company. Tribune Co. had won plaudits for investing in job search site and other digital efforts to capture some of the classified advertising revenue that was shifting online. But as the company struggled to meet the onslaught of new competitors like Google Inc. and Yahoo Inc., many observers viewed the Tribune Co. team as overly bureaucratic and unimaginative: strong operators, not clever innovators.

FitzSimons, who declined to comment, also had to cope with the legacy of a frustrating $8 billion deal in 2000 to merge with Los Angeles Times parent Times Mirror Co. The merger produced a bitter culture clash between the two companies that resulted in FitzSimons and his team being demonized in Los Angeles as zealous cost cutters despite the need to rein in spending at the Times Mirror properties.

That was distracting, but the more significant threat to FitzSimons' security was the growing unrest among the extended clan of legendary former Los Angeles Times publisher Otis Chandler. The Chandlers had controlled Times Mirror until the merger and held the second-largest block of Tribune Co. stock, after the McCormick Foundation.

They were furious that the family fortune had been diminished under FitzSimons' watch and frustrated that exiting their position required cooperating with Tribune Co. to dismantle two partnerships the family had put together to limit taxes.

Then in June 2006, the Chandlers brought matters to a head by launching a public campaign for FitzSimons' ouster. The CEO and supporters on the board pushed back. But what became clear in the following months was that even some longtime shareholders had had enough of the status quo.

The Chandler uprising gained energy from the biggest boom in debt-fueled finance since the corporate raider days of the 1980s. Just as the explosion in mortgage-backed securities was creating a gusher of money available to eager homebuyers who were increasingly less qualified for the loans, similar "structured securities" called collateralized loan obligations, or CLOs, were inflating what turned out to be a bubble in corporate lending.

Banks were funding ever-larger transactions on increasingly easy terms, making it seem as if any deal was possible. And as big Tribune Co. investors like John Rogers, of Chicago-based Ariel Investments, and Brian Rogers, at T. Rowe Price in Baltimore, looked around for ways to boost the value of their long-held stakes, they saw companies across the economy taking on debt to cash out shareholders either through buyouts or big special dividends.

Piggybacking on the momentum built by the Chandlers, these investors and others politely but firmly prodded FitzSimons to avail himself of an opportunity to restructure the company to boost the lagging share price, according to sources familiar with those discussions.

"Part of what the available credit did was drive a substantial amount of shareholder activism," said Citigroup mergers and acquisitions specialist Christina Mohr, one of Tribune Co.'s advisers. "There was this drumbeat ... return capital to shareholders, use the debt markets, give us back something. ... There was just so much money."

Tribune Co. went up for sale in September 2006, counseled by Citigroup and Merrill Lynch. Almost at once, a group of the nation's richest private equity firms began to circle and look at the company's books.

What they quickly discovered was that the clouds gathering over the publishing industry made it difficult to put together a deal that made sense. Even as it slipped in performance, Tribune Co. produced more than $1 billion annually in cash that could be used to pay down debt. But it was unclear how long the cash flow would last amid evidence that the industry might be in a permanent state of decline.

None of the bidders could predict the dramatic advertising slide that was to come. Still, the future was so out of focus that none was comfortable loading the company with enough debt to fund the payout shareholders were looking for, according to several sources.