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New owner at Tribune

The Baltimore Sun

Real estate billionaire Sam Zell took control of The Sun's corporate parent yesterday, pledging to be an "agent of change" at a company grappling with declining revenue and competition from newer media.

After the $8.2 billion sale of Tribune Co. to Zell and an employee stock ownership plan was completed, he appointed a new board of directors and installed himself as chief executive, which had not been expected.

The man who has been called "the Grave Dancer" for his ability to turn around properties given up for dead, said there are no immediate plans to sell any of the company's 23 television stations and nine daily newspapers. In addition to The Sun, Tribune owns the Los Angeles Times and Chicago Tribune.

But Zell, in a humor-laced news conference at Tribune Tower just hours after the deal closed, made it clear that change is coming.

Wearing jeans and an open shirt, Zell said there is a "new sheriff in town" and was defiant against those who say print journalism is waning. "I'm sick and tired of listening to everyone talk about and commiserate over the end of newspapers," he said. "They represent an extraordinary opportunity, and we're going to take advantage of it."

Zell pledged to give local managers more control, in contrast to Tribune's centralized management style.

"Collectively and individually, we have never been more fully charged to think and act like entrepreneurial owners of this business," wrote Timothy E. Ryan, The Sun's publisher, in a note to employees yesterday.

The deal's closing ends uncertainty over ownership of the nation's second-largest newspaper publisher. Doubts were raised over whether the banks financing the highly leveraged deal would be scared away by further declines in advertising revenue.

Analysts differed on whether Tribune's debt load, which is now about $13 billion, will force Zell to sell television or newspaper properties.

"I think if the business doesn't get materially better, they're going to have to do something to either lower costs or reduce debt," said Edward Atorino, an analyst with Benchmark Co.

But John Morton, a media analyst in Silver Spring, noted that the employee stock purchase plan underpinning the transaction was structured so that Tribune won't have to pay taxes.

That alone will boost cash flow available for debt payments by hundreds of millions.

"I have always thought Tribune could manage its debt under this new arrangement, and also I think Sam Zell didn't get to be a billionaire by being dumb," Morton said.

M. William Salganik, president of the Washington-Baltimore Newspaper Guild, which represents most Sun employees, said the union has had no indication of whether there will be further cuts in staff.

"I think Tribune has gone through a hard few years and some fresh approaches and fresh ideas could help us," said Salganik, a Sun business reporter.

"But as a general proposition, we think that you need to have enough people here to put an attractive product in the hands of readers."

Tribune will raise money by selling off the Chicago Cubs, Wrigley Field and Tribune's stake in the Comcast Sports channel.

Zell fed speculation about additional asset sales when he told The New Yorker reporter Connie Bruck that he has received offers on "every single asset in the portfolio."

In a lengthy profile in the magazine's Nov. 12 edition, he said, "Baltimore people are calling, Allentown's calling, Florida's calling, and, in L.A., David Geffen and Eli Broad."

A local group led by Theodore G. Venetoulis, a publisher and former Baltimore County executive, has approached the real estate magnate about buying The Sun.

"He [Zell] is well aware of our presence, well aware of our interest," Venetoulis said. "But beyond that, there has been no indication from him that he's going to sell assets other than the ones he has already committed to selling."

A Lehman Bros. analyst estimated in April that The Sun was worth $517 million. However, advertising revenue at The Sun and most other newspapers has slumped further since then, making the value of metropolitan dailies uncertain.

Taxes also could prove a major obstacle to selling any newspapers, since Tribune would have to pay capital gains tax on the profits. However, The Sun was the last newspaper purchased by Times Mirror and therefore has had the least amount of time to appreciate in value.

Times Mirror purchased the newspaper in 1986 from the A.S. Abell Co. and was itself purchased by Tribune in 2000.

The Sun and its then-companion paper, The Evening Sun, were valued at about $391 million at the time Times Mirror bought them.

One deal Zell is likely to pursue is an option to buy eight former Times Mirror real estate properties, including The Sun's downtown headquarters on North Calvert Street and its printing plant on nearly 60 acres in South Baltimore.

Tribune will have an option in January to buy the 3-million- square-foot portfolio for a below-market price of $175 million.

Tribune had secured the price in September 2006, when it worked out a deal to disentangle the company from the Chandler Trusts, which had been Tribune's largest stakeholders. Tribune pays the Chandler Trusts more than $24 million a year to lease the properties.

The Sun's printing plant sits in a largely industrial area of Port Covington in South Baltimore that has been targeted for mixed-use redevelopment.

One of the neighboring property owners, the owners of a waterfront shopping center with a Wal-Mart, wants to transform the 59-acre retail site into a $2 billion community that could include homes, offices, shops and a hotel.

If mixed-use redevelopment on the peninsula were to go forward, that would only enhance the value of the Sun plant, said Joseph M. Cronyn, a partner with real estate consultants Lipman Frizzell & Mitchell.

Experts disagreed about the future of the Calvert Street properties, including the headquarters at 501 N. Calvert and a garage with ground-floor offices at 601 N. Calvert.

The newspaper now leases the offices in the garage building to an architectural firm and part of the headquarters building is vacant.

Owen J. Rouse, a senior vice president and director of brokerage and investment services at Manekin LLC, a commercial real estate firm in Columbia, said he can see Tribune selling and then leasing back the buildings to raise cash and keep the newspaper operations where they are.

But he also said the buildings' connected parking and easy access to Interstate 83 would make them attractive to other tenants or investors.

"If that location could be redeveloped again, I would see it as a mixed-use development, which is not only the current fashion but something that would last a long time," and help link the city's core financial district to Mount Vernon, Cronyn said.

paul.adams@baltsun.com

An article in yesterday's Business section said that the Baltimore-Washington Newspaper Guild represents a majority of Sun employees. It represents most unionized employees at The Sun.The Sun regrets the error.
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