Beginning of End for Zell? Tribune Creditors May Sue for ‘Ruinous’ Buyout

A filing for permission to sue Sam Zell for taking company private may signal the beginnning of the end for the troubled company chairman

This might be the day it all began to end for Sam Zell.

While not yet pulling the trigger on the real-estate billionaire’s troubled almost-three-year reign at Tribune Co., it looks like creditors of the media company want to put the final bullet in the chamber.

Monday, the Official Committee of Unsecured Creditors asked U.S. Bankruptcy Court Judge Kevin Carney for permission to sue Zell and other benefiting shareholders “to recover damages caused by the Defendants’ misconduct in connection with the ruinous LBO Transaction.” (Read the filing here.)

Tribune has been in Chapter 11 since December 2008, barely more than a year after Zell took over and took the once-public company private – a move that creditors claim wiped out their investments.

The exclusive window that Tribune Co., owners of the Los Angeles Times, Chicago Tribune, TV stations and several other properties, had on putting together a solution to the almost 21-month problem expired on Aug. 9, which means that the creditors could drop the hammer and beginning forcing a solution of their own anytime.

The creditors, who have requested a hearing on their new motion for Oct. 22 in Wilmington, Ill., have not said they are actually going to sue, but they want the court to grant them “standing and authority to do so if talks break down.

“We believe that the UCC filed its motion because the deadline for initiating these types of claims is in early December,” said Tribune CEO Randy Michaels in an email sent out to employees Monday afternoon. “We remain focused on the mediation process and trying to reach consensus with our creditors on a restructuring plan,” Michaels added.

In the 62-page filing, the creditors clearly had a comment on the reorganization talks with the company, stating that their “Committee wholeheartly supports the mediation process and efforts … to achieve a consensual plan.”

However, as made evident in the filing, the creditors also were galvanized by a report earlier this summer from investigators that found what they call “dishonesty” in Zell’s 2007 $8.2 billion leveraged buyout of the company.

As if to make clear that Tribune understands just how itchy their fingers are getting, in the documents the creditors called the company’s recent forming of a committee to oversee a reorganization or potential lawsuits –  “clearly too little and too late.”

One potential solution that may come sooner than later — and has attracted a lot of attention in recent weeks — is the notion of bringing former Walt Disney CEO Michael Eisner in as the Tribune Co.’s new chairman.

Eisner, who left the Magic Kingdom in 2005 after almost 20 years at the top, has a longstanding friendship with John Angelo, head of NYC Equity firm Angelo, Gordon and Company, one of Tribune’s biggest creditors.

The office of Landis Rath & Cobb, the creditor's committee Delaware lawyers who filed the motion Monday, said it had no comment. Attempts by TheWrap to reach the creditor’s primary lawyer Howard Seife at his New York Office were not returned immediately.