Zell Out of Tribune Top Spot, Michaels To CEO

Randy Michaels

Sam Zell is handing off his duties as CEO of the Tribune Co. to his lieutenant Randy Michaels, who has served as the company's chief operating officer since May 2008.

Michaels, whose pre-Tribune career was focused on the radio business in Cincinnati, takes the reins of a company that remains mired in bankruptcy, with two groups of hostile creditors circling and no sign of a turnaround in newspaper advertising coming soon.

Industry watchers have long predicted the departure of Zell, who engineered the ill-fated $8.6 billion deal to take Tribune private as an employee-owned company in 2007. Many have predicted the creditors will install their own CEO if they take over the company. However, as the company remains under the control of Zell's management team, at least for the time being, Zell's resignation is more ambiguous.

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The elevation of Michaels could be intended to forestall a creditor takeover by installing someone more agreeable to creditors in the top spot. Conversely, he could simply serve as a caretaker CEO while the creditors proceed with their plans.

Zell's decision to hire Michaels as executive vice president and CEO of Tribune's interactive operations in December 2007 excited comment in the media industry. Much of it focused on the fact that he had no prior experience with newspapers.

Once installed at Tribune, Michaels soon earned a somewhat eccentric reputation for writing long exhortations to staffers laced with references to classic rock and the radio business. A review of Michaels' past experience does not reveal any special familiarity with corporate bankruptcy proceedings -- which in Tribune's case have grown rather complicated.

There are currently two contending groups of junior and senior creditors locked in legal disputes with Tribune's management over its proposals for bankruptcy recovery, as well with each other over the precedence for conflicting claims on Tribune.

Last week, senior creditors, led by JPMorgan Chase, filed a motion with the bankruptcy court aiming to block management's request to extend the period of Chapter 11 reorganization under management control by four months. Earlier this week, the judge delivered a compromise decision, giving Tribune until the end of February to come up with a reorganization plan (not the end of March, as originally requested).

Should the senior creditors eventually succeed in terminating this phase of the bankruptcy reorganization, it would clear the way for them to take the reins and implement their own reorganization plan.

The senior creditors are also trying to out-maneuver junior (subordinate) creditors, who have mounted a parallel legal campaign. They want the whole deal declared illegitimate, which would negate senior creditors' claims to precedence and give the subordinate creditors a bigger piece of the rapidly diminishing pie.

Recently, the subordinate creditors filed legal documents with the court claiming that Zell's and Tribune's previous management failed to perform due diligence in vetting the current state and future prospects of the company's finances. If they can prove that Zell and the previous management were negligent, the whole deal could be declared a "fraudulent conveyance" -- meaning that it was financially unsound from day one.

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