Tribune Co. CEO Randy Michaels resigned Friday, pressured by tales of raunchy behavior that likened him to the ringleader of a college fraternity house.
Michaels' decision to leave comes at a pivotal time for the troubled media company. After nearly two years operating under bankruptcy protection, Tribune Co. is drawing up a reorganization plan that it hopes to get approved by a federal judge before the end of the year.
The new plan, scheduled to be filed late Friday, is expected to increase the amount of money that Tribune Co.'s bondholders would get compared with a previous proposal. Tribune is hoping that would be enough to win approval of the much-debated reorganization plan.
A four-man executive committee will fill the void created by Michaels' departure. The new bosses are Don Liebentritt, Tribune Co.'s chief restructuring officer; Nils Larsen, chief investment officer; Tony Hunter, publisher of the Chicago Tribune; and Eddy Hartenstein, publisher of the Los Angeles Times.
The Tribune and the Times are the largest newspapers owned by the company, whose holdings also include more than 20 television and radio stations.
Michaels, 58, joined the Tribune Co. three years ago following an ill-fated $8.2 billion buyout engineered by real estate mogul Sam Zell.
Michaels became Tribune Co.'s CEO late last year. Michaels, a former radio disc jockey, won Zell's trust as CEO of a radio broadcast company that Zell owned, Jacor Communications.
It seemed likely Michaels' reign was nearing an end anyway. Lenders in line to become the company's new owners will probably want to install their own management team once a bankruptcy reorganization plan gains approval.
Meanwhile, at a hearing in Wilmington, Del., the judge overseeing Tribune Co.'s Chapter 11 case gave the official committee of junior creditors permission to file lawsuits against some parties involved in the 2007 buyout. He gave them until Nov. 1 to file the complaints.
An independent investigator concluded this summer that some aspects of the deal had bordered on fraud. The lawsuits could allege that Tribune Co. wouldn't have had to file for bankruptcy protection if not for fraudulent conduct by Tribune's board, including Zell, and some of its financial advisers and lenders. Tribune Co. spokesman Gary Weitman declined comment on the possibility of lawsuits.
Under Tribune Co.'s latest reorganization proposal, the lawsuits would be pursued by a so-called litigation trust with a $20 million loan from the company for covering legal expenses.
In exchange for relinquishing more money to Tribune Co.'s bondholders, senior lenders would be shielded from any legal claims tied to early stages of the Zell-led buyout, based on a tentative agreement reached earlier this month.
The reorganization plan could still be derailed by other Tribune Co. creditors. The proposal has the support of major creditors—JPMorgan Chase , distressed debt specialist Angelo, Gordon & Co. and hedge fund Oaktree Capital Management—as well as the committee of junior lenders. Tribune has not said where some of the company's other lenders stand.
Once Tribune Co.'s bankruptcy plan is approved, the company's is expected to be controlled by creditors who are getting ownership stakes in exchange for forgiving most of the debt incurred in Zell's buyout, which took Tribune Co. private. The debt holders in line to become Tribune Co.'s owners include JPMorgan Chase, Oaktree and Angelo, Gordon.
Michaels' exit apparently was accelerated by an unflattering portrait drawn of his management style in a front-page story published by The New York Times two weeks ago. The story, based on interviews with more than 20 current and former Tribune Co. employees, asserted that Michaels helped cultivate a culture filled with sexual innuendo, profanity, poker parties and other bawdy behavior.
Tribune's Chicago headquarters, one of the country's most famous skyscrapers, "came to resemble a frat house," the Times reported.
Tribune Co.'s board of directors issued statements supporting Michaels in that article, but he quickly found himself under fire again last week when a top lieutenant sent an internal memo with an Internet link featuring a racy video that included a bare-breasted woman pouring booze down her chest. The executive, Lee Abrams, resigned as Tribune Co.'s chief innovation officer.
"During the last few weeks the company has drawn a lot of media attention, much of it negative," the board wrote in an e-mail sent Friday to Tribune Co. employees. "That coverage has diverted attention from the things that matter most: The quality of our media products, the talent and dedication of our people, and the very real progress that we've made over the last two-and-a-half years."
Michaels was Tribune Co.'s executive vice president in charge of its broadcasting and interactive divisions before his promotion to CEO. When he was hired, Michaels also brought in many of his former colleagues from his days in radio.
By the time he was named Tribune Co.'s CEO, Michaels already had gained a reputation for using language and engaging in conduct more befitting of the "shock jock" that he once was. Michaels and Zell said they were trying to loosen up a traditionally staid company and usher in fresh thinking at a time of upheaval in the media business. Zell remains Tribune Co.'s chairman.
While Michaels was CEO, Tribune Co.'s financial performance improved, helped by cost cutting that has become common at newspaper publishers throughout the country as they try to offset a steep downturn in advertising sales that has depleted their main source of revenue.
Tribune Co. already has projected its newspapers' revenue will continue to drop for at least two more years while its broadcasting division rebounds. The company's other major newspapers include The (Baltimore) Sun, Hartford. (Conn.) Courant and the Orlando Sentinel.