Tribune Co Sale—“Grave Dancer” Plans Dance on Live Body

Apr 30, 2007

The Tribune Company, the owner of the Chicago Tribune, Los Angeles Times and the Baltimore Sun, among other papers, is being sold. The man buying it is Sam Zell, a billionaire.

The current biggest stockholders, the Chandler family of Los Angeles, who own 20% of the shares, demanded it be sold. The Chandlers will now walk away with 1.6 billion dollars. Other big stock holders are the McCormick Foundation in Chicago, as well as several big financial institutions, such as T. Rowe Price, Ariel Capital, Barclays Bank. They too will walk away with small fortunes.

Also getting a big payout will be the Tribune’s top five executives, who will get more than 51 million dollars in bonuses, plus millions more in stock options.

The purchaser Zell frankly says he has no interest in running newspapers. “I’m not interested in becoming an op-ed editor or publisher or anything like that. I’m interested in this as an investment.” In other words, something he can buy, then sell to make a quick buck.

He’s putting up very little of his own money to buy the Tribune Co. “Mr. Zell is hardly betting his shirt,” says the Economist magazine. “Mr. Zell would cough up a paltry $315 million–small change for a man who has just pocketed at least $1 billion from the $39 billion sale of his Equity Office Properties to private-equity buyers.”

Almost all the money used to pay off the current stockholders will be borrowed from banks, eight billion dollars. Business Week points out that this debt is ten times the gross profit of the company. “This is an angina-inducing multiple even for veteran media players accustomed to playing with debt, some of whom get nervous above six.” This very high debt means very high interest payments–estimated to be a billion dollars a year, paid, of course, to the big banks and financial institutions.

Of course, someone has to pay for all this. Zell intends that it should come from the workers, from the big profits they already produce for the Tribune, 1.2 billion dollars a year, expanded by wage cuts Zell will try to impose.

Zell also intends to stop the company’s contributions to the employees 401(k) accounts, which today runs from 4% to 9% of their pay, depending on how much they contribute from their own pocket.

In exchange, all 20,000 employees are going to be given stock in an Employee Stock Ownership Plan (ESOP). But this is quite different stock than investors buy. The employees aren’t allowed to sell it if it goes up or if they need the money, but only when they leave employment, and by then, given what Zell is up to, it could very well be worthless. Further, some part of their cash balance or 401(k) plan can be turned over to the ESOP.

This is exactly what happened to United Airlines workers. At one time the stock was worth over $100 a share on the stock market, but only management and outside investors could sell it, not workers in the ESOP. When the company went bankrupt, the workers got absolutely nothing from it. And the same thing happened to Enron employees.

Zell has been called the “Grave Dancer”–for profiting off companies’ collapse. But the Tribune and its 20,000 employees are not dead at all. And they can show Zell that.