Posted on 03/29/2007 4:43:21 AM PDT by abb
snip
Another possible source: Tribune's defined-benefit pension funds, which held assets of $1.76 billion as of Dec. 31, according to a company regulatory filing. The plans — including one covering employees of Times Mirror Co., The Times' corporate parent before its 2000 sale to Tribune — have mostly been frozen, meaning that no new beneficiaries are being added or new contributions being made. With the phasing out of the pensions, Tribune employees' main source of retirement savings is 401(k) investment plans, to which the company contributes.
Robert Willens, a tax and accounting expert with Lehman Bros. in New York, said the company could decide to invest a portion of the pension assets in the new Tribune without seeking the beneficiaries' permission.
The advantage of using an employee stock ownership plan, or ESOP, in a buyout is primarily that it would allow the new Tribune to escape taxes on principal and interest payments on its loans. Typically, only interest payments are deductible.
In exchange for its role as the borrowing vehicle, the ESOP would receive a significant ownership stake in the company.
The stock would be pledged as collateral for the loans and would be released into the employees' accounts as the loan was paid down. Because the shares would no longer trade on a public exchange, an appraiser would be hired to make an annual valuation of the stock.
Where would the money come from to pay down those loans? Because the ESOP would have no earnings of its own, the company would make tax-free annual contributions to the plan, possibly in lieu of the payments it now makes to the employees' 401(k) plan. That pool would be used to pay off the loans.
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(Excerpt) Read more at latimes.com ...
Ping
Sam Zell???
jeeze I thought it was about my favorite Democrat...Zell Miller.
He would be my choice for POTUS anyday!!!!
I don't think the trustees can do that anymore, post-Enron, without leaving themselves open to a HUGE liability if it goes belly-up..What they could do, I believe, is allow each employee with assets in the plan to choose if he wants to be a pareticipant.
"What they could do, I believe, is allow each employee with assets in the plan to choose if he wants to be a pareticipant."
Imagine if you could do that with Social Security.
When the company goes under, this obligation will be shifted to the Pension Benefit Guaranty Corp. Several airlines and others successfully managed this scam recently. At least the Chandlers are smart enought to try and steal the money before they get into trouble.
Sam Zell has a long standing reputation as the "Grave Dancer," a man who specializes in buying failing companies and profiting from them. Few companies really want to be in the position of being subject to his attentions.
The other point that comes to mind is the brilliant idea of raiding the employees' defined benefit pension plan to provide the new company with enough equity to be able to float the loans it will need. The administrator of a pension plan is an fiduciary under the Employment Income Security Act of 1974 whose sole obligation is to act on behalf of the plan's beneficiaries. It's hard to see how allowing the plan's assets to be raided to finance a dubious buyout by the Grave Dancer would either be in the interest of the plan's beneficiaries or consistent with the administrator's fiduciary responsibilities to them.
Another point is that the plan, as with all IRS qualified plans, is insured by the Pension Benefit Guarantee Corporation (PBGC). If the PBGC sees Sam concocting a scheme to raid the plan that could well render the plan insolvent, causing the PBGC to have to assume liability for paying the plan's basic benefits, it strikes me that the PBGC could well stop the deal.
Guarantee Corporation.
I'm not sure..you may be correct...but the fiduciary obligations of the trustees is held to a much tighter standard now. I was assuming that in a frozen plan, they would move to first allocate each employee's accrued lump sum portion...then give the employee the choice. I'm pretty sure that the PBCC would be able to walk away from any responsibility if the trustees took a big piece of the plan and dumped it in an ESOP..this is more like a trial balloon threat to get Zell to increase his offer ( which ain't gonna happen) Basically, the Trib finds itself with NO buyers..
You probably are correct. But this is a tactic companies have used many times in the past to get the money back they put into pension plans. And you are right - the PBGC and the employees will be watching this like a hawk.
The tactic of tapping into supposedly "overfunded" plans has been abused for years, but the IRS is cracking down..unfortunately, it's locking the barn door AFTER the cows have run off..
Another point about plan administrators is they are required to follow the "reasonable man" rule in investing a plan's assets. In other words, they're not supposed to invest a plan's assets in a way that a reasonable man in the same position would not. A basic tenet of fiduciary and private investment is to keep a portfolio diversified so that a serious loss in any one asset will not destroy the entire portfolio's value. IMHO it would be just about impossible for the Tribune plan's administrator to reconcile pouring the plan's assets into the proposed ESOP with the reasonable man fiduciary obligation.
I thought so too! A Thompson/Miller ticket would be awesome! or Miller/Thompson ticket!
Don't you just love it when elite liberal robber barrons loot pension funds of liberal union thugs.
How much fun those posts will be!
http://www.cjrdaily.org/the_audit/zell_and_the_media.php
Mar. 29, 2007 - 3:20 PM
What Journalism Should Know About Sam Zell
Dean Starkman
In CJR’s January/February issue, The Audit’s bosses on the other side of the cubicle encouraged Tribune Co. to exit the newspaper business with a tartly worded editorial headlined, “Time to Go.” Now, Tribune appears to be on the brink of doing so. I had no idea we were so influential.
As it happens, the leading bidder for the media giant, according to reports in two Tribune properties, the Chicago Tribune and the Los Angeles Times, is Chicago real-estate titan Sam Zell, though rival bidders are still in it. Still, a question arises: What kind of steward would Zell make for those civic assets, as well as the Baltimore Sun, Hartford Courant and Tribune’s other storied media outlets?
Put it this way: The Audit only wishes Royko and Mencken, former employees of papers now in Trib Co.’s hands, could be around to write about it.
I had the pleasure—and in many ways it was a pleasure—of covering Zell when I worked at the Wall Street Journal covering major real estate investment trusts, including the industry’s flagship company, Equity Office Properties Trust, founded and chaired by Sam Zell. It was in large part due to Zell’s efforts that a scandal-ridden and collapsed real estate securities business could be transformed into today’s transparent, stable, and prosperous REIT industry. Zell was the reformed industry’s public face, a reassuring presence as it reinvented itself and recovered from the catastrophic real estate collapse of the late 1980s and early 1990s.
So, to be clear: The modern REIT industry is a genuine ugly-duckling-to-swan story that has benefited millions of investors, and Zell’s role in that metamorphoses cannot be overstated.
Gruff, salty to the point of crass (he never tired of describing EOP’s position on disclosure as “open kimono”), Zell is invariably described in business stories as “colorful.” If you don’t know that he rides motorcycles, wears cowboy boots, eschews ties, started out selling discounted Playboys, etc., then you are well behind in your Zell studies. This story in Monday’s New York Times manages to recycle every known Zell fact without adding a new one.
The question of whether Zell is a brilliant dealmaker can be answered in the affirmative, though, as we will see, “brilliant” does not mean “infallible.”
As an operator, however—and that’s the issue for reporters, editors, readers and the communities relying on Trib Co.’s media properties—EOP was not a pretty story. Like a Lake Wobegon in reverse, it was always far, far below average. And unlike the placid, fictional Minnesota town, Equity Office was given to spasms of what can only be called managerial chaos.
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What Journalism Should Know About Sam Zell
...
And as the going got tough, [Zell's] EOP resorted to a strategy that will sound familiar to newspaper employees: cost cutting. And, one hates to pile on, but even in good times, EOP's culture in relation to the media and contrarian analysts was famously thin-skinned.
Point being, Zell's record as an operator of a national office company can't offer much comfort to Trib Co. constituents. And real estate is something he knows a lot about.
Tribune responds to 2 billionaires: paper
NEW YORK (Reuters) - Tribune Co. (NYSE:TRB - News) has responded to a request for additional financial information from Los Angeles billionaires Eli Broad and Ronald Burkle, whose bid for the company appeared to have been dismissed, people close to the company's auction said in The New York Times.
The response could reopen a negotiating process that had been perceived as all but over, the Times said.
Tribune had been expected to announce this week that it was selling itself to Sam Zell, the Chicago real estate mogul. Now that Tribune has reengaged with Burkle and Broad, the pair could sweeten an earlier offer and get back in the running, the Times noted.
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