Wednesday, December 21, 2011

Definition of Irony: Sam Zell Sues Former Tribune Shareholders for Money Owed

Does anyone remember what Sam Zell was reported to have told Tribune Co. shareholder employees around the time of his 2007 buyout of the company? No? Let's remind you: “I’ve said repeatedly that no matter what happens in this transaction, my lifestyle won’t change. Yours, on the other hand, could change dramatically if we get this right.” 

We now know that Zell didn't get it right and his lifestyle hasn't changed, if his recent purchase of the Elysian Hotel is any indication. But that didn't stop Zell from filing two lawsuits against former Tribune Co. shareholders to recoup $225 million.

The suits, filed by the Zell-controlled company EGI-TRB LLC, makes clear that Zell still believes the buyout was legitimate, but hedges his bets should a federal bankruptcy judge rule the buyout as fraudulent. 

Zell owns a $225 million Tribune note, which makes him a creditor and he wants to preserve his rights to collect what he can, should the judge rule the buyout was a fraudulent conveyance. It's a genius move, yet devilish at the same time.

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Sam Zell sues former Tribune shareholders 

In a strange twist even by the standards of the tangled Tribune Co. bankruptcy, billionaire Sam Zell filed two suits against the company's former shareholders seeking to claw back proceeds from the failed leveraged buyout he led in 2007.

The suits, filed in Cook County Circuit Court by Zell affiliate EGI-TRB, piggyback on allegations by Tribune creditors that the debt-laden $8.2-billion buyout was a fraudulent conveyance, meaning it left the owner of the Los Angeles Times, KTLA Channel 5, Chicago Tribune and other media assets insolvent from the start.

That Zell is suing alongside the creditors is ironic given that he has been a principal target of their ire.

Creditors have contended that as architect of the deal and chairman of Tribune's board, Zell breached his fiduciary duty by pushing forward with the deal.

But because he owns a $225-million Tribune note, Zell is also a creditor and filed his suits Monday in that capacity.

The suits make plain Zell's belief that the fraudulent conveyance claims lack merit and that shareholders who benefited from the buyout should be entitled to their proceeds.

But if a judge were to disagree, Zell wants to preserve his rights as a creditor to collect his share of any claw-backs from shareholders, the suits said.

Zell attorney David Bradford said that his client's real aim in filing the suits is to gain leverage in his attempts to persuade the creditors to settle their disputes.

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