Tribune Creditors Seek Probe Of Zell Buyout

BY DAVID ROEDER
droeder@suntimes.com

Firm would be hired to take closer look at ESOP, which U.S. already is investigating

Tribune Co. creditors are turning up the heat on Sam Zell by threatening an investigation of the leveraged buyout he used to take over the company.

The creditors asked the federal bankruptcy court for authority to hire an outside law firm to probe Zell's $8.2 billion deal. Zell took on debt to fund the takeover of what had been a publicly traded company, but the worst market for advertising since the recession forced the media conglomerate into bankruptcy last December.

To avoid taxes, Zell established an employee stock ownership plan that owns Tribune. The ESOP has no seat on Tribune's board and Zell controls the company because he put up $315 million for an option to buy 40 percent of it.

The creditors want to hire the firm Zuckerman Spaeder LLP to review the ESOP. The filing said the request comes from seven of the nine members on the creditors' committee.

The two members not involved are JPMorgan Chase Bank and Merrill Lynch Capital Corp., whose corporate affiliates helped finance the deal. A hearing on the request was scheduled for Sept. 4.

The U.S. Labor Department and the IRS already are investigating the takeover of Tribune, specifically the ESOP.

Tribune Co. forwarded a statement that said, "We have been fully cooperating with the review of our 2007 going-private transaction by the unsecured creditors' committee."

An attorney for the creditors declined to comment.

Last week, the Sun-Times reported that creditors are working on a Tribune reorganization that will push Zell out of management. If that occurs, owners of Tribune's nearly $13 billion in debt could attempt to break up the company.