Tribune Proposal Update
March 31, 2007
This article provides a basic explanation of how the ESOP would work in the proposed Tribune transaction, and adds some additional insights:
- They will most likely use up to 10% of the company’s defined benefit plan assets, the maximum allowable by law, to fund the transaction.
- The company has an inactive ESOP and the inactive plan’s assets will most likely be used to fund the transaction.
- The ESOP will borrow money to fund the transaction, either from the investor(s) or outside investors.
- While the transaction could be structured so the employees could elect to contribute their 401(k) assets to the transaction, this will most likely not occur due to the extensive securities compliance requirements and the short time period to finalize the transaction.
- The restructuring or purchase of the company could will likely involve layoffs or a reduction in compensation or benefits.
- The considerable debt of the company may limit the initial value of the tax deductions.
- An important factor that will impact the long-term success of the transaction is the corporate culture that is created after the transaction.
This article also discusses how the transaction could be structured.
Here is a general timeline of the Tribune’s auction process:
- March 31, 2007 – Tribune’s self-imposed deadline – The full board will be conducting a weekend meeting following Friday’s gathering of the special committee.
- March 29, 2007 – Burkle and Broad make another involving an ESOP at $34/share.
- March 2007 – Zell improves his offer to $33/share.
- February 2007 –Zell makes his initial offer, involving an ESOP.
- January 2007 - Original proposed transactions are rejected. The focus switches to management’s self-help deal.
- September 2006 - A special committee is established to explore alternate ways to increase shareholder value, including restructuring or selling the company.
This article also recaps the various offers in the Tribune auction process.