Tribune's Murky Acquisition by Sam Zell

It’s official: Tribune (TRB-NYSE) is being acquired by Sam Zell for $34.00 per share in cash, sort of.  Tribune will be privately held, with an Employee Stock Ownership Plan (ESOP) holding all of Tribune’s then-outstanding common stock and Zell holding a subordinated note and a warrant entitling him to acquire 40 percent of Tribune’s common stock. Zell will join the Tribune board upon completion of his initial investment and will become chairman when the merger closes.

This is a two-stage deal where Sam Zell will acquire 126 million shares in a cash tender in Q2, but then a second stage tender in Q4. The board of directors of Tribune, on the recommendation of a special committee comprised entirely of independent directors, has approved the agreements and will recommend Tribune shareholder approval. Representatives of the Chandler Trusts on the board abstained from voting as directors. However, the Chandler Trusts have agreed to vote in favor of the transaction.

The Employee Stock Option Plan will immediately buy $250 million innewly issued stock at $28.00.  Sam Zell will invest $250 million andjoin the boards.  Tribune itself will launch a tender for its ownshares at $34.00 ($4.3 Billion).  Shareholders may receive an 8%annualized "ticking fee" on their shares if it has not closed byJanuary 1, 2008.  The company can shop the deal up to shareholderapproval date for a break-up fee of $25 million to Sam Zell.  Tribuneis suspending its dividend.

Tribune has financing commitments from Citigroup, Merrill Lynch andJPMorgan Chase to fund the transactions. Tribune will initially raise$7.0 billion of new debt of which $4.2 billion will be used to completethe tender offer and the remaining $2.8 billion will be used torefinance existing bank credit facilities. In the second stage, Tribunewill raise an additional $4.2 billion of debt which will be used to buyall the remaining outstanding shares of the company. Tribune’s existingpublicly-traded bonds are expected to remain outstanding.

The Chicago Cubs will be sold after the 2007 season along with a 25%stake in Comcast SportsNet Chicago, and those proceeds will pay downdebt.  If this is not a complicated or unusual deal, then who knowswhat is.  This is really more of an investment and assumption ofcontrol with a leveraged gamble from the new assumed debt.  For abillionaire, he just took the company on the cheap compared to aclassic buyout of what is otherwised thought of as a media asset in adiminishing industry. 

Based on the structure being complicated and based on this being afuture "ex-Cubs" basis, this one might not be over.  Being able totakeover a property like this with this sort of structure may actuallykeep some of the industry carnage from destroying some of the other"old media" stocks.

Now for the bigger question going on in Chicago:  Who will get the Cubbies?

Jon C. Ogg
April 2, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.