Tribune tries to stay intact, Cubs sale imminent


The flagship Chicago Tribune says Tribune Company CEO Sam Zell is determined to keep the company’s main assets together, as well as to preserve the tax-advantaged ESOP structure, as Tribune reorganizes in Chapter 11. Meanwhile, the long bidding process for the Chicago Cubs may produce a winner this week.

While still in the early stages of the bankruptcy reorganization begun in December, the Chicago Tribune reports that Zell’s team is operating on the assumption that the company’s newspaper and broadcasting assets are worth more as a group than if they were sold off individually. The company has numerous newspaper/broadcast combinations, including the heritage combination of the Chicago Tribune and WGN-AM & TV. So, the plan is to try to reorganize the financial structure without selling core assets.

The problem, though, is that Zell used a creative employee stock ownership plan (ESOP) structure to take the company private last year and avoid taxes. The Tribune story says major creditors are willing to leave the ESOP structure intact, if possible, but that structuring such a deal will be difficult. “That’s one of the big issues,” the story quoted Howard Scife, an attorney representing the creditors committee, as saying.

The Chicago Cubs are not a core asset, though. Well before the Chapter 11 filing Zell had put the baseball team and Wrigley Field up for sale. There are now reports in the Chicago Tribune and elsewhere that the long auction process is at an end and the winning bidder is likely to be announced this week. The three finalists are the Ricketts family (founders of TD Ameritrade), private equity investors Marc Utay and Leo Hindery, and Chicago real estate investor Hersh Klaff.   

RBR/TVBR observation: We had noted early on that maintaining the ESOP structure would be a challenge in the Tribune Company reorganization. The normal outcome for an overleveraged company in a Chapter 11 reorganization is to swap stock for a big chunk of the debt to de-leverage the company. Tribune can’t do that – at least not within the ESOP structure, since outsiders can’t own shares. It will be interesting to see if the master dealmaker, Zell, finds a way to get around that and offer creditors something that feels like equity, but doesn’t look like it to the IRS.