The Tribune Goes Private in an ESOP Transaction
April 3, 2007
The Tribune Company (NYSE:TRB) released the following press release: Tribune to go private for $34 per share. In addition to providing the details of the transaction, the press release discusses the company’s future retirement plans:
The press release Beginning Jan. 1, 2008, eligible Tribune employees will participate in three retirement plans:
- ESOP: The newly-created ESOP will be funded solely through company contributions. Those contributions will be invested in shares of Tribune stock (the private company), which will be allocated each year among eligible employees’ accounts in the ESOP trust. The first allocation, for the year 2008, will be made in early 2009. The company initially anticipates an annual allocation of approximately 5 percent, based on employees’ eligible compensation. GreatBanc Trust Company will serve as the ESOP trustee, and the ESOP will be administered by a board-appointed employee benefits committee.
- Cash Balance Plan: A cash balance plan will be funded entirely by the company and provide a 3 percent annual allocation to each eligible employee’s cash balance plan account.
- Existing 401(k) Plans: Eligible employees will continue having the opportunity to contribute a portion of their pre-tax earnings to 401(k) accounts.
The transaction will be in two stages, and end up with the ESOP owning all of the company and Zell, acting as chairman, with a warrant to purchase 40% of the shares:
The company said yesterday morning that Mr. Zell will invest $315 million in the deal in a two-step process. In the first step, Tribune will stage a tender offer, at $34 a share, for a bit more than half of the company's shares. To fund the offer, the company will use $250 million of the $315 million pledged by Mr. Zell, plus additional borrowed money. It will return $4.2 billion to shareholders.
If the deal is approved by regulators, a second step will follow: the ESOP will buy the rest of the shares at $34 a share and Zell will put in $65 million, the rest of his pledge. The ESOP then will hold all of Tribune's remaining stock outstanding, and Mr. Zell will hold a subordinated note and a warrant entitling him to acquire 40% of the common stock for a price initially set at $500 million. The deal values the company at roughly $8.2 billion.
Mr. Zell will get a seat on the company's board and will be able to appoint one other member. If the deal is approved, he will become chairman. The board will have five independent directors, a majority. Dennis FitzSimons, the company's current chairman and chief executive, will remain on the board and continue as CEO. Although Mr. Zell will not control a majority of the stock, he is expected to exert considerable influence over decision-making.
Some financial analysts believe the warrant will not be exercised.
This blog post further discusses the details of the transaction, including the fact that if a better offer comes along, Zell would get a $25 million break-up fee, and if the merger is not closed by January 1, 2008, the shareholders will get additional cash.
WHAT IS AN ESOP
We previously discussed ways to answer the “what is an ESOP” question. This Wall Street Journal article answers that question as well as some other ones:
- What is an ESOP?
- How can an ESOP be used to take a company private?
- Will Tribune employees really own the company?
- What will Tribune employees pay for their shares?
- Why is an ESOP risky?
- What are the benefits for employees?
PERSPECTIVES FROM THE ESOP COMMUNITY
The ESOP Association published the following press release regarding the transaction:
April 2, 2007 (Washington, DC) – The following is a statement from J. Michael Keeling, President of The ESOP Association, in reaction to the sale of the Tribune Company to an ESOP (employee stock ownership plan).
The ESOP Association is pleased to see news today of the sale of the Tribune Company to an ESOP. There are very few companies in ESOP history the size of the Tribune Company using a leveraged ESOP. It is refreshing to see a private equity/LBO transaction take place that includes the employees.
The deal put together by Mr. Zell will permit employees to share in the wealth of the company. We urge the company’s leadership to be aware of the challenges of being an ESOP company and to pay attention to the education of the employees so they are conscious of the needs of being an ESOP company and will be able to make the company succeed beyond anyone’s expectations.
Dr. Steven Freeman, a scholar at the University of Pennsylvania, recently released a study covering over 30 years of research on ESOPs and employee ownership and the positive impact that can be brought to a company by an ESOP. It offers fresh opinions on employee ownership and ESOPs and is important research on the topic. The study can be found on The ESOP Association’s website at www.esopassociation.org.
Founded in 1978, The ESOP Association represents over 1,400 ESOP companies and over 1 million employee owners who believe that employee ownership will improve American competitiveness, increase productivity through greater employee participation and strengthen our free enterprise economy.
Various ESOP experts provide commentary in this article. In addition, the late NCEO Employee Ownership Update for April 2, 2007 st provides more commentary on the transaction.
OTHER PERSPECTIVES
This blog addresses the tax advantages of an ESOP to an employee, while these two posts discuss the deal from a retirement plan perspective:
Send lawyers, pens, and money. ESOP to become major shareholder in Tribune sale
The Tribune deal is done and Thank Goodness
Finally, this blog provides an employee perspective of the transaction.