Analysts Weigh in On Tribune Deal: Employee Ownership a Good Thing?

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By: Jennifer Saba

The financial community greeted the sale of Tribune with a mixed reaction but not much excitement, sicne the review process took an eternity and industry fundamentals have pretty much tanked.

“I think the skeptics were proven wrong,” said Edward Atorino, an analyst with Benchmark Co. “Allegedly smart investors will buy media assets.” Even the price, $34 per share, isn’t too shabby — he thinks, but adds the caveat, the Chandlers offered the same months ago.

What’s really meaningful now, said Atorino, is the company is no longer under the thumb of Wall Street: “It’s gets them out of the spotlight and gets them away from quarterly pressures.”

Already at a disadvantage because so much time has been lost on this review process going private “gives them flexibility to do things at a different pace,” Atorino ads.

Bear Sterns’ lead analyst Alexia Quadrani released a note with a much more blunt tone after projecting the transaction multiple of 10.3 times 2007 EBITDA or 9.8 times if hidden assets are taken into account.

“After an exhaustive six month review we believe this complicated and heavily leveraged transaction is another indication of the waning interest in newspaper business given the ongoing secular challenges that are weighing on the fundamental outlook,” Bear Stearns analysts wrote.

“While we believe [Tribune] public shareholders have found a relatively decent exit strategy … we don’t believe this transaction bodes well for the rest of the group.”

The employs stock ownership plan (ESOP) is less about power to the workers and more about tax benefits for Tribune, said media economist Miles Groves.

There are still questions as to how much say employees will have in the new company — industry analyst John Morton thinks they won’t have much. “The one thing employees can be thankful for is that the company will stay together,” Morton said.

The failed ESOPs of the Milwaukee Journal Sentinel and the Journal Star in Peoria, Ill. are haunting this deal. In those cases, the ESOP was a victim of its success when both papers, more or less, were in danger of running out of funds to pay employees looking to cash out.

Morton thinks the Tribune situation has a chance only because of the owner: “The difference in those two circumstance, aside from the size is [Peoria and Milwaukee] didn’t have a Mr. Zell with $39 billion in his bank account.”

Benchmark’s Atorino puts the whole ESOP business into this perspective: “It will be enlightening to the employees to face the realities in the business world, particularly reporters — don’t take this personally — who don’t understand they are a business.”

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