Tribune Co. buyout proposed

Deal would form a privately held company, sources say

February 26, 2007|By Michael Oneal | Michael Oneal,CHICAGO TRIBUNE

Chicago real estate magnate Sam Zell is proposing to participate in a buyout of Tribune Co. in a deal structured around an employee stock ownership plan, several sources close to the situation said Friday.

The deal is one of several options being considered by the special committee of independent directors charged with overseeing Tribune's months-long effort to sell or restructure the company.

It would create a privately held, highly leveraged company that would be able to take advantage of federal tax breaks associated with employee stock ownership plans, or ESOPs, to provide "a bigger payoff" to existing shareholders than the other restructuring options being studied by the Tribune board, one of the sources said.

Tribune properties include The Sun, the Chicago Tribune, the Los Angeles Times and Newsday.

The committee, which met by phone Saturday, is still seriously considering a management-led plan to spin off Tribune's TV stations and pay shareholders a large dividend.

But Tribune's board has also found Zell's idea compelling enough that it feels it has a fiduciary duty to give it further study, the sources said.

It "has some intriguing elements to it," one source said. "It's being actively worked." Representatives for Tribune and Zell had no comment.

Zell's interest in Tribune was first reported by the Chicago Tribune Feb. 7. Since then, the board and management have concentrated on a "self-help" restructuring.

That deal would involve a tax-free spinoff of the company's TV stations and taking on large debt to finance a dividend in the $20 range for existing shareholders.

Tribune is also exploring selling its newspapers in Stamford and Greenwich, Conn., to Gannett Co., sources said, and it might consider selling the Chicago Cubs baseball team.

The board has said it will complete the process by the end of the first quarter.

Details of Zell's proposal were sketchy Friday. But one source said the Chicago billionaire's private firm and an ESOP would team up to purchase Tribune's shares and keep the company largely intact for now, including keeping management in place.

It was not clear whether the McCormick Tribune Trust, a nonprofit charitable organization that is Tribune's second-largest shareholder, with a 13.1 percent stake, would also participate. How much of the company Zell or employees would own was also not known.

The tax benefits of an ESOP structure are what would allow the deal to give existing shareholders a bigger payout for their shares. In an ESOP, an employer is allowed to write off money used to fund employee retirement plans as well as pay off both the principal and interest on the large pile of debt needed to buy the company.

Presumably, such a deal might also achieve another prime objective of Tribune's management and the board: cashing out California's Chandler family, the company's largest shareholder, with a 20 percent stake.

Michael Oneal writes for the Chicago Tribune.

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