By: E&P Staff
Tribune Co. already is straining under $4.5 billion in debt amassed over the years by aggressive stock repurchasing programs and a $1 billion tax bill it inherited with the purchase of Times Mirror Co.
With its announcement Monday that it is going private in a deal with Chicago real estate magnate Sam Zell, Tribune said it will take on an additional $11.2 billion of debt.
In the first stage of the deal, Tribune said it will raise $7 billion of new debt, with $4.2 billion used to complete a tender offer to repurchase approximately 126 million shares of common stock at $34 per share. The remaining $2.8 billion will be used to refinance existing credit.
In the second stage of the deal, Tribune will raise an additional $4.2 billion of debt that will be used to buy all the remaining outstanding shares of the company. Meanwhile, the company said, ?Tribune’s existing publicly-traded bonds are expected to remain outstanding.?
Tribune said it has financing commitments to fund the deal from Citigroup, Merrill Lynch and JPMorgan Chase.
Helping to draw down the debt is the announced sale of the Chicago Cubs baseball team after the 2007 season.
Forbes magazine last year estimated the value of the Cubs at $448 million, the fifth-most valuable team in the major leagues. But Crain?s Chicago Business in an article last week by Brandon Glenn quoted an economist with Anderson Economic Group LLC as saying the franchise could be worth as much as $600 million, because of recent off-season moves such as hiring slugger Alfonso Soriano and new manager Lou Piniella.
The huge debt is made possible by the ESOP (employee stock ownership plan) at the center of Zell?s $34 a share deal.
ESOPs are retirement plans, so contributions to them are tax-deductible. Debt can be paid down tax-free.
Under the deal, Tribune employees will participate in three retirements plans.
With the ESOP, which is funded only by company contributions, employees get shares in the newly private company rather than cash contributions. Tribune said the first annual allocation, covering the company?s performance in 2008, will be made in early 2009. Tribune said it anticipates an annual allocation of approximately 5%.
GreatBanc Trust Company will be trustee for the ESOP, which will be administered by a board-appointed employee benefits committee.
A second retirement plan is a cash balance plan funded entirely by the company that would provide a 3% annual allocation to each eligible employee’s cash balance plan account.
Finally, the existing 401 (k) plans would be continued, with able to contribute a portion of their pre-tax earnings to the accounts.
Tribune said there will be no change to pension benefits previously earned by employees and retirees.
The company said its defined-benefit pension plans serves approximately 37,000 participants, and that, as of the end of 2006, the pension plans ?had assets of over $1.7 billion and were over-funded by more than $200 million.?
“Going forward, employees participating in the ESOP will be invested alongside Sam Zell, one of today’s most successful investors,? Dennis FitzSimons, Tribune? s chairman, president and CEO, said in a statement. In the deal, Zell will become chairman, and FitzSimons will retain the president and CEO titles.