Zell deal for Tribune bears evidence of fraud, report says
Tuesday, July 27, 2010
That deal under which Sam Zell bought the Tribune Co. seemed shaky at the tine — the total cost was far above the already shrinking market value — and now a U.S. Bankruptcy Court investigator says he has found evidence of possible fraud.
You can read the 63-page volume one report overview here, and more detailed reports are available through the bankruptcy court on the PACER system (the files were too big to upload here). The short version: At the closing of the deal, Tribune managers, advisors Valuation Research Corp. and officials for Morgan Stanley prepared presentations that did not accurately reflect the company’s rapid deterioration. At the time, the newspaper industry nationwide was being pummeled by collapsing readership and advertising markets.
In the end, the deal left Tribune too shaky to survive, concluded Kenneth Klee, the Los Angeles lawyer appointed by the court to review the deal. He also said “a court is somewhat likely to conclude that the Tribune Entities incurred the obligations and made the transfers … with actual intent to hinder, delay, or defraud creditors.”
The impact? Experts are suggesting it could derail Tribune’s efforts to emerge from bankruptcy as complaints by unsecured creditors gain credence.
And it should be noted that Klee blamed unidentified Tribune executives, not Zell, for the bad deal, suggesting they had breached their fiduciary duty in not being honest about the corporation’s financial woes.
Tribune, as most of you know, owns the Los Angeles Times, which has gone through significant budget and staff cuts — including me, effective September 2008 — since the Zell deal went sour.