Tribune staff report
http://www.chicagotribune.com/news/local/chi-070403zell-q-and-a,1,5637225.story?coll=chi-news-hed
April 4, 2007, 1:05 AM CDT
The day after Chicago real estate tycoon Sam Zell and Tribune Co. announced their deal to take the Chicago-based media concern private, Zell sat down with Chicago Tribune business reporters and editors for his first in-depth interview. This is an edited transcript.
Question: I think we want to start by asking when you first got interested in Tribune Co., what was it you saw? What was it that made it seem like a good idea.
Zell: I think that the first time we looked at the Tribune was right after the announcement that you were going to hire bankers to pursue value or something. We looked at it and kind of kept it on the back burner. We just put it on hold.
Q: What changed?
Zell: The impending end of the process didn't really produce a rational solution. One of the people involved called and said 'Sam, nobody is getting anywhere. This is crazy. You're the guy. Take a look at this." So we did. In the process, we remembered we had seen this particular structure in another deal we had proposed.
Q: Which one?
Zell: Covanta. We kind of went back and forth and concluded and under those circumstances we could see doing a transaction. In the process of us buying Covanta, one of the options for the previous ownership was to do something like this, which is what triggered us to think about this.
Q: When you were thinking about what attracted you, what seemed most attractive.
Zell: I don't think we thought "Oh my God there's a gold mine or here's the answer." Basically we looked at all the businesses. We compared to other companies in similar businesses. We thought, just as Mark Twain said, 'stories of my death are greatly exaggerated,' we felt the same way about the newspaper business. People were beating it up and predicting its demise. And we didn't see it that way. We thought there was a lot of future in the newspaper business.
Q: There seems to be something going on with the newspaper business.
Zell: Oh, without question. The question is, 'is it a 5 -11 alarm fire or is it a brush fire?' If it's a 5-11 fire we're in big trouble. If it's a brush fire, we're going to figure out how to put it out or make its impact so minuscule as to not to impair the rest of the opportunity.
Q: Do you have a sense of the hose needed to put it out?
Zell: I think I have various ideas. I think my people have various ideas. But frankly, we've been to this movie before. And so we know the first thing we have to do is, no matter what your opinion is, is to listen. Our goal in the near term is to listen to everything that's going on. And hopefully reach some conclusions and then match them up with our own opinions.
Q: The issue over here is the job cuts and the cost cutting. Are there going to be job cuts, do you think? And how do you feel about the amount of cost cutting that's gone on?
Zell: First of all, I really am not in a position to comment on what's happened in the past. I just don't know. I've never been involved in any situation where there wasn't any kind of cost cutting that wasn't either terrible or worse in the opinion of the people who worked in the company. I'm a great believer in a meritocracy. It's really simple, my whole goal in life is to build businesses and to build jobs and to create thriving enterprises. And my standard is that they just got to perform. And the $64,000 question is, 'How do we up the revenue? How do we in effect make this into a much more viable business?' That's our focus. To be honest with you, I don't know anything about job cuts. I don't, and I think that's all in the realm of (Tribune Co. Chairman, CEO and President Dennis FitzSimons) and the CEO. My focus is not to look at this thing and see how we can eliminate one more table leg. Because frankly, eliminating this or eliminating that isn't going to make this work. What's going to make this work is raising revenue and that's the goal.
Q: In the newspaper business, raising revenue means either raising advertising rates or raising circulation or a combination of both. At first blush, which of those makes more sense. How do you do that?
Zell: This is for sure an amateur guess at this point. But I would think the biggest single issue is circulation and circulation penetration. And I think the issue is what if, how do we do this, what's our cpm? And how can we lower that cpm to make us more competitive with other forms of media. Those are the kinds of questions that I think are relevant. I think the answer is probably we have to find ways to increase circulation and to increase penetration. (But) you know what, I'm the first one to tell you, I don't know. .. I'm perfectly happy if someone says to me, but you're wrong. I've been wrong before. So it's OK. Our job is to ask the questions. And I can assure you we're going to do that.
Q: Another point of concern is your view on the what's the value of editorial excellence and are editorial excellence and profits mutually exclusive?
Zell: If they are, we're all in a lot of trouble.
Q: Talk about the value of what we do as journalists.
Zell: If you are relevant, people are going to buy a newspaper…If people buy a newspaper, circulation is going to go up. If you're not relevant, people will stop buying newspaper and stop buying advertising. Somehow or another we have to define how we service customers. I don't have an opinion, believe it or not, on what you write other than what you write has to be truthful and relevant. And if it is, I think the ultimate customer for you is there and that translates into viable businesses.
Q: There's been a lot of discussion on what's relevant is the Internet. There's been a lot of talk on whether to shift resources to the Internet.
Zell: I'm aware of those conversations and it is a little early for me to opine on it. But I think you raise what for me is a very important point, which is allocation of resources. If we're going to grow revenue you have to look at that question. I don't have an opinion today other than we do that with every company. We look at how are we allocating capital? What are we achieving? Are we producing the product?. Are we competitive? Those are the relevant questions. And I think they are as important to the newspaper business, the TV business, the barge business or any other business.
Q: When you look at the stock price, and the value of the Internet is not reflected in the stock price. When you look at the mix of businesses, what do you feel is not being correctly valued on Wall Street.
Zell: I'm not sure that Wall Street's valuation is necessarily incorrect. We think that, or so it appears to us, there are pieces of this company, that may be worth more or less than what the street thinks, but overall I don't think we have any massive dispute with the valuation of the street.
Q: I've heard you say that a company like the Tribune doesn't have an owner. What do you mean by that?
Zell: That means there is a need for someone to step back from 20,000 feet and say, this is the domain, how should it be allocated, how should it be run? And what risks are willing to be taken. The problem with the street and the public is that the public doesn't have one voice. In my experience, an owner is having someone whose role is to create direction. It's the mental set of being responsible. We're going to do an ESOP here. I'm going to be responsible to all those employees. I take that responsibility very seriously. I'm an owner and I'm an owner for that as much for myself. My experience is that the companies that perform the best have owners, someone in a position to say, 'Here's where we should go,' or 'follow me,' or 'go for greatness.' In this situation, that's the opportunity for me and hopefully I can fulfill it.
Q: A lot of those roles are traditionally the CEO's.
Zell: My answer to that is, I'm not sure I endorse the traditional approach. I think you get a second guy and it's someone that the CEO can talk to. I once hired a guy 20 years ago … he looked at me and he said to me, Do you understand the role you play? If you're a the CEO of a large company, you have no one to talk to. Ultimately, you don't have anyone you can sit across from and let your hair down. That's the role I'm talking about. It's creating the ability for the CEO to be able to vet his ideas and to vet his crises.
Q: That implies there was a vacuum for that kind of leadership here.
Zell: I think this company was not different from a lot of very large companies. And I think what I'm espousing is not the norm. I believe it is the formula that works.
Q: A lot has been made of you being a maverick. This is an institution that's conservative. How do you view the culture issues in terms of you and the Tribune.
Zell: I guess what I would say is that I really think that the board believed that bringing in some outside influence to this company was a definite positive. That taking it private and off the roller coaster was beneficial to the company. This is not necessarily a new thing. I just look at things, and historically, looked at things differently.
Q: Is questioning conventional wisdom always appropriate? Is it always something that pays off?
Zell: Questioning always pays off. That doesn't necessarily mean that questioning it means taking the opposite direction, but questioning it, always. Because that's the way you formulate opinions and that's the way you are able to take a position here and reach a conclusion. In the end, I really view myself as extraordinarily simple and if I had one great skill, it's historically to take complex situations and make them very simple.
Q: When you look at a company like this and wonder how it strayed off course, what typically is your opinion does that? What do you see here in that sense? Where do you think the Tribune needs to adjust itself to bring itself back in line?
Zell: I'm sure there are answers to that question, I don't think that at this stage of the game I'd be doing you a service if I answered it. From my perspective, I'll make a date with you in six months and you can ask that question and I'll have a definitive answer for you.
Q: How familiar are you with what has been going on at the LA Times?
Zell: More familiar than I'd like.
Q: Obviously a lot of subtexts are going on there that really encapsulate what's going on in the business. Could you talk about your version of what you think has happened and how would you fix a problem like that.
Zell: I don't know how much of what I've read is valid. I've read the L.A. Times and the New York Times, as well as the Tribune, on this particular subject. I don't know whether it's the old story, from the L.A. Times perspective, of the fish that swallowed the whale and there's a lot of resistance to that. I think there's some Midwest-coastal scenarios going on. I'm not familiar enough with the personalities involved…I can't tell you if someone went down on their sword to make a point. I don't know all the facts. Ask me in three months and I'll have a much more definitive answer.
Q: Did you mention that someone at the Tribune reached out to you (about buying the company)?
Zell: One of the bankers that was involved.
Q: To the extent that the (LA Times situation) could be viewed as an insurrection, how do you look at that? What do you do about that?
Zell: I have the benefit of having no history and obviously one of the first things we're going to want to understand is the history of what you're talking about. We dealt with other situations in the past of varying natures. I think we understand the cultural issues. But I wouldn't in any way venture any opinion today unless I had a lot more data.
Q: Is it OK for a (top) manager to say, 'I don't want to do what you want me to do?'
Zell: No. He has the opportunity. He has the job. Whatever the terms of the job are, he has to live by them. All I can tell you is that, I am your boss and I tell you to do something that is not unethical, but is in line with some big corporate program or directive or philosophy, you've got a choice. You can play or you can go work for somebody else…Everybody's entitled to an opinion. But once you've chosen to work with somebody and the lines of the story are clear, I don't know how you could operate a business if you lay out a strategic plan and then have 20,000 people opt out.
Q: What is the optimal relationship, between directors and chairman and their executives, and how do you create that relationship?
Zell: I'm a great believer in the philosophy that the definition of power is never having to take a vote. In other words, if I have a view and I can't convince everybody that that's the right direction, then I have no ability to execute. I have to be a good enough salesman and trust people enough to be able to reach a consensus decision that also doesn't contradict whatever direction I think we're going. There's no tyrannical relationship. If anything, my goal is--the CEOs of the companies I'm responsible for, I want them as strong and independent as possible. There are times when I'm unhappy that something didn't get done that I wanted to…My philosophy is don't kill the messenger. I have an office. The doors of my office haven't been closed in 30 years because my goal is as open an environment as possible, and closed doors are indicative of various forms of conspiracy. My philosophy is the enemy is without. Internally, you've got to be as open and accessible as possible and have everyone participate and share in the decision-making process.
Q: How does someone, the one guy on the jury, convince the rest of the group?
Zell: One of my favorite terms in that circumstance is, 'Take me on. Here's what I think, take me on. Why is this not relevant?' And you know what, sometimes they're absolutely right and I'm dead wrong, and that's OK. That's OK. I don't have some kind of monopoly on the details. I for sure don't have a monopoly on intelligence quotient. I for sure try to surround myself with the smartest people I can find and use them. My board of directors in all these companies are cheap consultants. If you want to be a board member, you've got to contribute. If you contribute, then you're going to be a cheap consultant, and that's how it works.
Q: When you talk about contribution, what kinds of people need to be on your board?
Zell: I want to add talent to the board. I want to find people who in one form or another are cheap consultants. I'm not kidding. Newspapers, TV, the Internet--What do we do? What do we do? Those are the three areas…How do we bring somebody to the board room who maybe has experience in other arenas that fit our world. I promise you, I have no monopoly on ideas. In fact, whatever ideas I have are not enough.
Q: But the ESOP isn't going to have a seat on the board. Why not?
Zell: The idea was that two of the independents would be run by the ESOP. But in the end, it was all about alignment of interests, and nothing else matters. I'm putting $315 million into this deal, cash. I don't get a nickel return unless the deal is a success to the stockholders. We are tied in the pot together. I think that is a pretty serious commitment that I believe is going to work. I believe the economics of this transaction are an extraordinary opportunity for the Tribune employees and (they) truly will tremendously benefit from their position and their contributions.
Q: What can we expect 10 years from now?
Zell: I bought Anixter Jan. 1, 1987. Twenty years later, I've still got the same position in Anixter that I had 20 years ago. Why? I think it was a good investment. It's a good company. It produces. It's relevant. Every day that I don't sell a company, I'm buying it. The biggest challenge somebody like me has is finding great value. If 10 years from now, the Tribune has turned into this wonderful investment, what could be better than to keep the thing going? In this world, you guys keep writing about private equity. You know, one of the greatest limitations is time frame. KKR raises $10 billion, and the terms call for an investment period of four years and a liquidation period of three. That means seven years from now, you've got to be out. I don't have a time line. I'm one of these horrific generational thinkers and investors. But that's the way I think. I don't have a time frame. This isn't like I'm going to invest for 10 years. The answer is that if this is a terrific investment, I'm going to keep it going.
Q: What about going public again? Is that something you've thought through?
Zell: I think we've thought about this thing that we're going into a 10-year investment, at a minimum. We haven't thought at all about a liquidation strategy, and I don't think one is required.
Q: You look at Tribune as a business just like any other one?
Zell: You guys come up with extortionist theories about everything. You think I think about my barge business the same way I think about the waste-to-energy business? Every business is different, OK? But if it isn't based on economics, there is no business. Businesses that fail to learn that lesson don't exist any more.
Q: But there's not another business like a business that's full of reporters?
Zell: You ever been in the department store business? They make reporters look good. And that's really hard to say. How is a newsroom any different today than it was 50 years ago or 100 years ago, or 50 years from now.
Q: The difference is the Internet.
Zell: Now we're on to the issue of relevance. And the question is, if Harry is a great reporter and in fact he ends up being a blogger on the Internet for the Tribune or the L.A. Times and that creates revenue, that's the name of the game. What I'm saying to you is it's all about relevance. It's all about contribution. I feel very strongly that that core thesis permeates everything.
Q: People talk about journalism and the public trust. Obviously, we take that very seriously. But relevance and the public trust don't always match up perfectly. That gets back to editorial excellence.
Zell: I really believe that you can be relevant and you can be editorially spectacular. And I think you can be irrelevant and be editorially spectacular. And the name of the game is the former and not the latter. Do you think I would put my name on anything that is short of excellent? Certainly not on purpose. The most valuable asset I have is my name. Sure I've got a couple of dollars here or there, but the real deal--and, by the way, very relevant in the Tribune transaction--is my name. I've attempted to be associated with excellence in everything I do. Excellence is my middle name. I can assure you, I have no interest in being a rich charlatan. I don't need to do this.
Q: You've said you don't need to do this. Then why do it?
Zell: The true test of an entrepreneur is someone who spends his life constantly testing the limits. The definition of an idiot is someone who has reached his goals. So, possibly, the answer is, this is a great challenge. It's a great opportunity. It's not going to change my lifestyle. It's likely to change yours. But it's not going to have any impact on mine. Everything I do is motivated by doing it best, doing it different, answering the questions that no one else could.
Q: If we wrote up a profile of you that just got under your skin and made you mad....
Zell: You already did, you already did.
Q: But you weren't chairman of the company.
Zell: It wouldn't make any difference. You'd still (tick) me off.
Q: What can we expect if that were to happen?
Zell: The same thing that happened the last time--Nothing. Do I look naïve enough to think I have any influence about what people write? What you wrote about me in the magazine is a perfect example. There is a question about honesty and correctness, but I have no control nor do I expect to have any control. In fact, I will accept that your writing on me in the future is going to be--hard to believe--worse than it has been up until now.
Q: What can we expect in terms of your getting involved with the company? How is this transition going to unfold?
Zell: I think you need to ask me that question in a couple months. I promise you that I don't make a $315 million commitment lightly. And I promise you that I'm not one of those guys who makes a deal and then forgets about it. The answer is, sure, my influence will be felt. Hopefully, in the most positive sense. I have no objectives here other than to make this the best media company in the world.
Q: People have been pretty hard on Tribune management. There are some people who feel they have to get out. They're staying. How do you view that?
Zell: I hope our transaction puts all the issues to bed. I think it's unfair to totally judge Tribune's management on the events of the last three or four years.
Q: Why?
Zell: Because I think the external distractions….dramatically impacted the company's ability to function.
Q: By external distractions, you mean the Chandlers?
Zell: I think if you read the board minutes from the last four years, there would probably be a lot more on governance issues and other things than on how do you make this a better company.
Q: Would you consider a partnership with David Geffen for the LA Times?
Zell: It's a question I couldn't possibly answer. No. 1, I don't know David Geffen well enough. I had dinner with him once but that's not enough to have an opinion other than that he's a delightful character. I don't know how to answer that question. I can tell you I wouldn't consider a deal with Burkle and Broad but that's a different story.
Q: Have you ever done business with the Tribune before?
Zell: I once had the Tribune pension fund as an investor in one of my funds in 1990….In February of 1996, they passed the Telecom Regulation Act. I saw that as a once in a lifetime extraordinary opportunity. I called the management of Jacor and I called the Tribune. I told them how I saw the opportunity and they concluded they didn't (want in).
Q: Why do you think they didn't do it?
Zell: To be honest with you, the only person at the Tribune I had ever met, was that guy. I don't know what happened.
Q: Had the Tribune been too conservative about that kind of thing?
Zell: There are people who suggested that. I think we're still formulating an opinion.
Q: Why did you wait so long to get into the auction?
Zell: I really thought it would end up being a big vanity game. I thought people would be motivated by the Cubs. It just didn't make any sense and it was only when I got that phone call (from the banker) and the guy basically said "this isn't going anywhere."
Q: Do you think newspapers will continue their downhill slide or have they hit bottom?
Zell: I don't know. But I do believe that this is going to be a spectacular investment for us and for the employees.
Q: You talk about being relevant. What is relevant in the media landscape?
Zell: That is the $64,000 question. And I sure don't have the answer to that other than you need relevancy. You can write the best editorial in the world and nobody reads it, I question its relevancy. On the other hand if you write pieces that attracts people's attention, that's relevant.
Q: How do you get your information? Do you read newspapers? Do you read online?
Zell: I've never read online. I don't have a Blackberry. I read five newspapers a day, Chicago Tribune, Wall Street Journal, New York Times, LA Times, Financial Times. And I read everything. I read Forbes, Fortune, Business Week.
Q: Can you talk about Sunday (Tribune's negotiations with Burkle-Broad)?
Zell: I think on Sunday, we believed the board was in a position where it probably favored our deal because at that point it was certain. It's probably true that the Burkle Broad letter put them against the wall. In the end, we compromised on a whole bunch of things.
Q: What about the history of ESOPs and the question of employee representation?
Zell: I think if you move away from the United Airlines scenario, there are lots and lots of successful ESOP scenarios that have been going on for years. There have been many successful ESOPs. And this business lends itself to ESOPs because you have a lot of people, at least in theory, who are intelligent.
Q: There's been some talk about Wrigley Field not being mentioned as part of the Cubs.
Zell: I think the Cubs could be sold with Wrigley Field and without Wrigley Field. I don't know. There's certainly no conspiratorial thesis….The Cubs in the hands of someone who really wants to own them and pay for it is a much more intelligent solution than for a company like this to own them.
Q: What about the Freedom Center?
Zell: It's a spectacular piece of land. It comes down to what are the economics. If the cost, for instance, that moving the plants is such that it took away from the value of the land, then it's an exercise in futility. I suspect there's real estate value everywhere (within the company).
Q: Were there people who approached you who wanted to be part of the deal (to buy the Tribune Co.)?
Zell: Sure, Eli Broad. He called me, the day before he wrote the letter. He said I want to be your partner. I said when the deal is done, I'd be glad to talk to you. And the next day he wrote the letter. If someone calls me one day and says I want to be your partner and then the next day tries to stick a knife in my back, tell me again why I would want to do business with him?
Q: Did anyone else approach you?
Zell: A lot of people approached me.
Q: Do you plan to have an office here?
Zell: The only place I want is a slot to put my motorcycle when I come here.
Tribune interview conducted by Tribune reporters Michael Oneal, Phil Rosenthal and David Greising and Associate Managing Editor/Business Jim Kirk. Interview transcribed by Tribune reporter Nancy Ryan.
Copyright © 2007, Chicago Tribune
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