The sale of the Tribune Co, (NYSE: TRB) seemed to take forever (the process took about ten months). Then again, the newspaper industry continues to sag.
That's why it took the financial imagination of deal maestro, Sam Zell, to get the deal done.
The price tag for the Tribune comes to $34 per share or about $8.2 billion. That is about 10X EBITDA, which is a pretty good valuation.
To finance the deal, Zell is using a leveraged Employee Stock Ownership Plan (ESOP). That is, he will borrow a huge amount of money and have employees vest into the stock over time.
A big attraction is the significant tax benefits. First, the interest and principal is deductible on the debt. Next, owners of the Tribune's stock may be able to rollover their holdings into other stocks or bonds – and avoid paying capital gains tax. Also, by being converted to an S Corporation, the Tribune might be able to exempt some of its profits from taxation.
Another benefit is that the employee ownership should be an incentive for the workers.
On the other hand, if the Tribune's business weakens over the next few years, it could be a big hit to the personal balance sheets of employees – and that, of course, would not be so good for morale.
Just look at the ESOP at UAL Corp(NYSE:UAUA). It turned out to be a disaster because industry fundamentals fell to pieces and the company finally had to declare bankruptcy.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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Reader Comments (Page 1 of 1)
4-16-2007 @ 6:27AM
Dave Rissmiller said...
UAL's ESOP failed because that ESOP never really gave ownership to its employees. The employees, as owners, never had a vote in the attempted acquisition of US Airways, but the stock holders of US Airways did. When Jack Craton was temp. CEO back in 02, the share holders, being lead by the employee owners, voted against 2 of the 4 proposals in that years annual share holders meeting. Creaton, UAL's then CEO, came out with a statement that in the end, the BOD makes decissions based on what they think is in the best intrest for the company, not on how the share holders vote. That ESOP should of and could of worked had the employees been treated as owners.