Monday, April 02, 2007

Zell wins out in battle for Tribune

Zell wins out in battle for Tribune
By Joshua Chaffin and James Politi in New York
Copyright The Financial Times Limited 2007
Published: April 2 2007 13:40 | Last updated: April 2 2007 15:53

Sam Zell, the Chicago billionaire, prevailed in the battle for Tribune, one of the largest US media groups, after he agreed to raise his offer to $34 per share, or more than $8.1bn, allowing him to push past a rival bid from California billionaires Eli Broad and Ron Burkle.

Mr Zell, who built his fortune in the property market, also agreed to raise the cash component of his offer to $315m from $300m in order to take control of Tribune, the second-largest US newspaper publisher in terms of circulation. He also owns 23 television stations and the Chicago Cubs baseball team.

Tribune said on Monday that it planned to sell the Cubs at the end of the baseball season, a move that some analysts have predicted could raise $500m or more to help pay down more than $11.2bn in new debt that will be issued to finance the transaction.

Mr Zell’s selection concludes what had been a torturous six-month auction process that highlighted investors’ deep concerns about the newspaper industry, which has been struggling to reinvent itself as readers and advertisers migrate to the internet. The board extended the auction because of scant interest, and the final sale price represented only a slight premium to where Tribune shares had been trading when the company bowed to pressure from the Chandler family, one of their largest shareholders, and agreed to consider a deal.

William Osborn, the Tribune director who oversaw the strategic review, said the six-month process had been thorough. “We determined that this course of action provides the greatest certainty for achieving the highest value for all shareholders and is in the best interest of investors and employees,” Mr Osborn said.

Following the sale, Tribune will become private, joining the growing ranks of media companies that are turning away from public markets, and will continue to be led by chief executive Dennis FitzSimons.

A key feature of the deal is that it will be financed by the creation of an employee stock ownership plan, which will effectively buy Tribune. Mr Zell will then receive warrants entitling him to a 40 per cent stake.

Mr Zell proposed the ESOP as a way to minimise taxes. Yet the structure also raised concerns that it would concentrate employees’ retirement funds in Tribune shares – a potentially risky proposition.

Tribune, however, has taken steps that it believes will mitigate that risk. In addition to the ESOP, employees will also be eligible to participate in two other retirement plans. “Going forward, employees participating in the ESOP will be invested alongside Sam Zell, one of today’s most successful investors,” Mr FitzSimons said. “With the additional plans, Tribune employees will have a well-rounded package of retirement benefits.”


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