Posted on 04/02/2007 6:06:33 AM PDT by abb
Employee Stock Ownership Plan (ESOP) Created; Sam Zell to Invest, Join Board; Chicago Cubs and Comcast SportsNet Interest to be Sold
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Sale of the Chicago Cubs
Separately, Tribune announced that following the 2007 baseball season, it will sell the Chicago Cubs and the company's 25 percent interest in Comcast SportsNet Chicago. The sale of the Cubs is subject to the approval of Major League Baseball, and is expected to be completed in the fourth quarter of 2007. Proceeds will be used to pay down debt.
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update here:
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003566178
Analysts Weigh in On Tribune Deal: Employee Ownership a Good Thing?
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Benchmark's Atorino puts the whole ESOP business into this perspective: "It will be enlightening to the employees to face the realities in the business world, particularly reporters -- don't take this personally -- who don't understand they are a business."
Amazing how a business must make money and flow cash in order to make payroll and all them other mundane thingys. This is so if its a private company or the stock is publicly traded.
I guess reporters have been sorta like government workers for too long. They thing their paycheck just falls from the sky...
http://tribunewatch.org/news.php?ID=3457
TNG-CWA calls for representation of worker interests in Tribune Co. ESOP
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070402:MTFH21480_2007-04-02_19-25-58_N02429875&type=comktNews&rpc=44
Tribune employees to pay takeover bill for Zell
ESOP: Fables, facts and foibles
When the parent company of the Milwaukee Journal went public in 2003, the event produced once-in-a-lifetime windfalls for 2,250 staffers who had invested in its employee stock ownership plan.
But all ESOPS are not alike. The plan being created for Tribune Co. is significantly different from the Milwaukee plan, except in one respect: All ESOPs share the common trait of delivering major tax benefits to a company that has one. More on that in a moment. First, here’s some background:
For secretaries, printers, editors or any other employee who invested regularly in the Journal Communications ESOP in the 10 years prior to the IPO of the Milwaukee company, the offering delivered a gain of nearly tenfold, according to the New York Times. “Where [else] could we have ever done this?” said a bookkeeper after learning she was an instant millionaire.
Thanks to a benevolent owner who placed 90% of his company in the hands of its workers, the Journal Communications was a successful ESOP. Perhaps the saddest part of the story is that barely more than a third of the company’s 6,000 employees took advantage of this extraordinary opportunity.
But not every ESOP leads to a happy landing, as the more than 70,000 employees of United Airlines learned after purchasing 55% of their company with their retirement funds in 1994. When United declared bankruptcy in December, 2002, the employees of the largest ESOP in history lost approximately two-thirds of the $3.3 billion invested in the plan, according to documents filed in an unsuccessful class-action suit seeking to recover the loss.
Although the idea of workers owning a piece of the company employing them sounds positively Marxist, an ESOP really is a clever capitalist tool enabling a business owner to cash out of a significant portion of his company while saving on taxes and retaining control of the enterprise.
In typical circumstances, employees investing in the ESOP don’t get to see the company financial information and have no vote in its management. Enabled by federal legislation in the 1970s, ESOPs deliver tons of favorable tax treatment to a company.
When the owner of a business puts seed money into an ESOP intended to fund the eventual buyout of a portion of his company, he gets a tax deduction equal to the amount of money funding the plan, as well as deductions for the principal and interest on any loan he takes out to create it.
In the case of Tribune, immediate tax benefits will be generated from the $250 million put into creating an ESOP in the first stage of the complicated, multi-step transaction that will take it private, according to a company press release.
The tax breaks get better when the owner actually sells some of his holdings to the ESOP. If an ESOP buys 30% or more of a C corporation from the owner, then all the gains of the sale are tax free to the owner, so long as the proceeds are held in qualified investments.
The structure planned for Tribune appears to build in an immediate gain for the ESOP, along with an accompanying tax benefit for the current investors who sell their shares in the business. The ESOP is scheduled to be funded at $28 a share and then rolled into a structure priced at $34 a share, generating an 21.4% gain in perhaps less than 12 months.
While participation in the Journal Communications plan was voluntary and the company even arranged low-interest loans for employees who wanted to buy more shares than they otherwise could afford, the Tribune plan will be solely funded by the company as part of multi-tier retirement program. Unlike the United plan, Tribune employees eligible for 401(k) retirement accounts will be able to continue to invest in those accounts and, thus, diversify their pension portfolios.
As demonstrated in Milwaukee, ESOPs can be a beautiful thing for employees when a company is successful. But they can be a nightmare if things go wrong.
If most or all of employee retirement funds are invested in a company’s ESOP, as was the case at United, then the collapse of the business could wipe out everyone’s pension. If the company itself goes out of business, as happened to one former General Motors unit purchased by its workers, then people would lose not only their pensions but also their jobs.
Much more needs to be learned about the specifics of the Tribune plan, which is not likely to be a plain-vanilla implementation. But the structure suggests the following implications:
:: Restructuring as an ESOP will enable Tribune to efficiently raise cash to buy the shares of such dissident shareholders as the Chandler family, while enabling the departing shareholders to shield much, if not all, of the any gains from taxes.
:: The tax advantages associated with an ESOP will enable Tribune to save on the costs of borrowing money, thus providing more working cash, lowering borrowing costs and potentially enhancing profitability. This will give Tribune a less-dear alternative to outside financing.
:: With additional cash available to fund the business, Tribune either could pay investors higher dividends or use the funds to make strategic investments for the future in niche print products, new-media projects and the like.
:: Operating as a private company no longer required to satisfy unrealistic Wall Street expectations from quarter to quarter, Tribune can take a longer-term view of its business. Although the tax and financing benefits of an ESOP might put a bit less pressure on the company to cut expenses than public or private ownership funded by private-equity investors the continuing uncertain revenue environment for newspapers may persuade management that it is prudent to reduce such expenses as headcount, newsprint consumption, television programming and more.
Advocates say ESOPs improve sales and cut expenses by raising productivity and morale. It remains to be seen whether an ESOP will turn Tribune into the Promised Land.
But the company's anxious employees probably are more than happy this Pascal season to be coming to the end of what must have felt like 40 years of wandering in the desert.
HELLO!!
Zell Deal Will Bring Quick -- And Big -- Payday For Top Tribune Execs
By Mark Fitzgerald
Published: April 02, 2007 4:20 PM ET
CHICAGO While anxious Tribune Co. employees and gimlet-eyed Wall Street analysts weigh the benefits and perils of ownership by an ESOP (employee stock ownership plan), one thing is certain: Sam Zell's $8.5 million winning bid Monday will make for a big payday for top management.
And a prompt one, too.
Last October, Tribune directors amended the company's bonus deferral, defined contribution and supplemental retirement plans to allow for quick lump-sum payments due top executives under the plans in the event of a "change in ownership or effective control of the company, or in the ownership of a substantial portion of the assets of the company."
Zell's $34 per share bid will also results in some substantial executive nest eggs. Chairman, President and CEO Dennis FitzSimons, for instance, would receive $21.3 million for his shares, based on the number reported in February in a filing with the U.S. Securities and Exchange Commission (SEC).
Based on his latest filing, Tribune Publishing President Scott Smith, who is also publisher of the flagship Chicago Tribune, would have holdings worth a cash value of $9.2 million.
Links referenced within this article
mfitzgerald@editorandpublisher.com
http://www.editorandpublisher.com/eandp/news/mailto:
Find this article at:
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003566356
</ducking>
Or as we say down here in the South, "root hog, or die."
Cramer is on the warpath:
http://www.bloggingstocks.com/2007/04/02/cramers-thoughts-on-tribune-buyout/
Cramer's thoughts on Tribune buyout
Posted Apr 2nd 2007 1:40PM by Brent Archer
Filed under: Analyst reports, Deals, Industry, Private equity, Tribune Co. (TRB), Options, Technical Analysis
Tribune Co. (NYSE: TRB) opened at $32.85. So far today the stock has hit a low of $32.11 and a high of $33.10. As of 12:25, TRB is trading at $32.95, up $0.84 (2.6%).
After hitting a one year high of $34.28 in September, the stock has trickled downward over the past several months until recently catapulting back up the charts on news of its impending buyout. The stock is rising still today after accepting an $8.2 billion private equity buyout offer from real estate investor Sam Zell. While investors are eating the deal up, Jim Cramer is up in arms. The buyer can afford to take a big hit, Cramer says, but he fears that it's the employees who will pay dearly, and with Tribune's new owners having zero experience in the newspaper business, he is skeptical about the company's future prospects. Cramer even goes so far as to say that bankruptcy may be imminent. The technical indicators for TRB have been bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $35 range. TRB has not been above $35 since late 2005 and has shown resistance above $34. This trade could be risky if the current $34 bid gets upped in a bidding war, but given the outlook for the newspaper business, this is a relatively low probability event.
More.
Jim Cramer Blog
Lack of Financial Acumen Burns Papers
By Jim Cramer
RealMoney.com Columnist
4/2/2007 9:41 AM EDT
URL: http://www.thestreet.com/p/rmoney/jimcramerblog/10348006.html
Why are almost all newspapers so poorly run financially? Why did Tribune (TRB) borrow money to buy back stock so high? Why did The New York Times (NYT) do the same thing, too? Why did Knight Ridder buy back stock endlessly -- sometimes at much higher prices, too?
This pattern is particularly unnerving because all of these companies are so challenged in their basic businesses. They could have spent to build up Web operations. They could have created their own sites to keep the value to the companies. But instead they all tried to develop Web companies that could come public. They didn't get there in time to beat the closing of the IPO window.
Tribune was particularly egregious. This company never did anything Web-wise, with management endlessly thinking that its stock was undervalued. It was clearly overvalued, and now the upside is totally capped. The little amount that Sam Zell is putting up to take this company private shows how little these companies are really worth.
All of these companies seem to be run, frankly, by jokers or dreamers who had no idea how to deploy capital. The only explanation I can think of is that they were run by people who are up from the newspaper side or are heirs to the founders and had no idea what they were doing financially. Dow Jones (DJ) was like that for years, and it is finally being run in an intelligent financial way. Probably too late, though.
These are diminishing assets. They don't need to exist. Younger people rarely read them. And the companies acted like they would always be in demand and were simply misunderstood by Wall Street. Nope, Wall Street got it the whole time, except a couple of hedge and mutual funds that are trapped and trying to get managements to do something to bring out value.
The result? The Philadelphia Inquirer gets wrecked. The Times boosts the dividend well beyond its means. And now the Tribune sets the stage for a massive downsizing, massive firings and the inclusion of tons of Associated Press copy.
Great. Just great.
More.
Jim Cramer Blog
Just How Stupid Is Tribune Deal?
By Jim Cramer
RealMoney.com Columnist
4/2/2007 8:04 AM EDT
URL: http://www.thestreet.com/p/rmoney/jimcramerblog/10347942.html
Every now and then, a deal surfaces that is so stupid and egregious that you just can't believe it can be allowed to go forward. That's how I feel about this incredible plan to use the employees' life savings to finance a bid for Tribune (TRB) .
Let's count the ways that this is so stupid.
First, there's really very little skin in the game for the buyer. They aren't doing anything much at all other than putting to work a small amount of their personal capital to gain the editorial voice they want and to allegedly streamline the businesses.
Of course, they know nothing about the newspaper business, which, in some peculiar ironic twist, is supposed to be "good" because papers are being run so economically poorly. I can only presume that means if you fire everyone, run AP copy and break the unions, you can make more money. I figure as soon as things go bad, they can walk away because, despite any protestations to the contrary, these men are like countries; they can afford to lose whatever they want. And they will.
Second, we know that the only real free lunch on Wall Street is diversification, yet this concentration of retirement money in one asset -- the same asset as where their paycheck comes -- is the definition of reckless. No one with a degree of savvy in his right financial mind would participate in this nonsense where, if things go bad, you lose both your nest egg and your paycheck.
Third, we saw this kind of recklessness backfire in the '80s with the Carter Hawley Hale ESOP, a pretty darned good department store that went down the drain and the workers lost everything.
Fourth, I cannot think of a worse industry for an ESOP bailout. Cash flows are falling so fast that it would not be surprising to me to see this company go bankrupt within three or four years of the deal. In fact, I may be too generous. If the negative industry trends continue, there will be huge layoffs, and the retirement funds needed to protect those fired won't be there. That would then precipitate federal help for which we'll all pay. Newspapers are in a secular decline, and nothing can stop that. If you take a look at the situation with two different fine papers -- the Philadelphia Inquirer, which is just hemorrhaging, and the Minneapolis Star, which was just fire-sold, you know what I am talking about. Both were strong franchises as recently as a decade ago.
Fifth and final is a word to the wise of employees: Fight this. Fight this hard, or leave now and take your retirement funds with you or cash out if you can. I have been in contact with several high-level employees, both corporate and journalism, and it is clear to me that no one at the Tribune has a darned clue about what is really happening and how things work. This is going to be a disaster -- and I respect the work of both teams of buyers.
If we had a Labor Department, it would put a stop to this pronto. Of course, we have a Department of Capital, and it loves these deals, because it could care less about anything but compiling labor statistics. Classic late-stage capitalism at work.
But they can tell us all what's best for us, our money, our taxes, our society, and our everyday life.
Not for very much longer...
True! The Trib is nothing like the paper Col. McCormack owned. It’s a complete shame, too. So unnecessary.
Say the Cubs are worth $700 mill +_ or -...do you realize that the 4 players just signed for $300 milllion total could pledge their contracts, and borrow enough to buy the club..
Cramer's dead-on correct. If this deal goes though, it will be the end of the Chicago Tribune and Los Angeles Times as we currently know them. Sure, they'll keep printing for a number of years to come (though the smart move might be to attempt to go online-only), but they'll have so few employees that they'll be able to do little more than an average medium-sized city paper can do: Lots of local crime and accident coverage, some area sports, and tons and tons of wire copy.
Of course, ideologically, this is the best possible outcome for conservatives, since neither paper's management or staff has any interest in providing balanced news coverage.
An excellent short!
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