September 17, 2008 / 1:00 AM / 11 years ago

Times reporters sue Zell, seek ouster from board

LOS ANGELES (Reuters) - A group of current and former Los Angeles Times reporters sued their boss Sam Zell on Tuesday seeking to remove him and his close business associates from their parent company’s board of directors.

Sam Zell, Chairman and President, Equity Group Investments LLC and Chairman and CEO, Tribune Company speaks during the Real Estate: Where is the Bottom? panel at the 2008 Milken Institute Global Conference in Beverly Hills, California April 28, 2008. REUTERS/Phil McCarten

The class action filed in a federal court in California claims the Chicago-based real estate billionaire — who is chief executive of Tribune Co, which owns the Times — has damaged the company’s reputation and business since taking its reins last December.

After the takeover, Tribune became privately held with an employee stock ownership plan owning most of the company. But the contentious deal involved borrowing against Tribune’s existing assets, which increased debt to $13 billion.

“Through both the structure of his takeover and his subsequent conduct, Zell and his accessories have diminished the value of the employee-owned company to benefit himself and his fellow board members,” the lawsuit said.

A Tribune Co spokesman declined to comment saying the company had not yet seen the lawsuit.

The company comprises eight newspapers, including The Los Angeles Times, Chicago Tribune and Baltimore Sun, dozens of websites and television stations, and the Chicago Cubs baseball team, which it is selling to cut its debt.

The deal that gave Zell control of Tribune also established a mechanism by which he can acquire 40 percent of the $8 billion company at $500 million. The plaintiffs call the deal “a scam” and say it puts at risk the employee owners’ interests, including their retirement plans.

Before buying Tribune, Zell was known to be an astute real estate businessman who could turn dying properties into profit-earning enterprises.

In order to make Tribune profitable, Zell and his associates have dramatically reduced the size of newsrooms and slashed employee benefits, the complaint says.

“Zell began an illegal march — launching mass layoffs and forced resignations of some of the nation’s finest, most experienced editors, reporters and others needed to produce high quality publications,” the complaint said.

The lawsuit was filed by auto critic Dan Neil, who has won a Pulitzer Prize for his work; Henry Weinstein, a former Times legal writer; Jack Nelson, a former Washington, D.C., bureau chief for the Times; and others.

The fast-changing media industry is struggling with change as more and more readers move online. That factor, along with a slowing economy, has forced many newspapers into a struggle for advertisers.

Last month, Tribune reported a 15 percent drop in advertising revenue and appointed former DirecTV chief executive officer Eddy Hartenstein to run the LA Times.

Reporting by Syantani Chatterjee; Editing by Bob Tourtellotte, Gary Hill

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