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Tuesday, April 03, 2007

Tribune Sale Details Coming Out

With yesterday's announcement of the sale of the Tribune Company to Sam Zell, today comes the details, some of which should be a little scary to employees.

The Tribune Company is a media company, with the majority of it's income being derived from newspapers. Considering the sale of the company is being done basically with a leveraged buyout funded with the employee stock ownership plan that Zell is creating to borrow the money, employees should be wary.

ESOP's aren't necessarily a bad thing, but that plan is borrowing 8.4 BILLION dollars to buy back all of the stock. This at a time when the original asking price for Tribune Company was $55 a share, and the sale price ended up at $34 per share. That kind of shows the trend of media stock, specifically newspapers, so something has to be done to get earnings up, or the value of that stock plan won't be much of a nest egg.

Zell is doing a few smart things in the buy. First, he's not putting much of his own money into the plan, about $315 million dollars according to the Chicago Sun Times (Not a Tribune Co.).

Secondly, he's selling off the Chicago Cubs, Wrigley Field and the 25% ownership stake in Comcast Sports Network that The Tribune Company currently holds. Prices range from $600 million to $1 Billion for that package, which will be used to service some of that debt.

Some of the marginal papers in the Tribune portfolio will probably get sold off, as well as a few TV stations to help with the debt. While it will hurt some of the employees of those outlets, overall it should be good for those who remain.

But the question remains, can a company that is primarily a newspaper company make enough money for that ESOP to end up paying off in the long run? Considering the trend in newspaper stocks and income over the last few years that's questionable. Sam is going to have to come up with something big to completely turn around the company and make this a great deal for the employees, too.

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