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Massachusetts Liberal

Observations on politics, the media and life in Massachusetts and beyond from the left side of the road.

Monday, December 08, 2008

Sam Zell's ESOP fable

The decision by Tribune Co. honcho Sam Zell to file for Chapter 11 bankruptcy makes for a catchy story in an era where many once-respected US companies are slipping down the rathole.

The reality is the bankruptcy filing should have little day-to-day impact on journalism. United Press International is still around after two bankruptcy filings. It's irrelevance is more due to its current ownership -- the Rev. Sun Myung Moon's News World Communications -- than to its journalistic chops.

The biggest question for me is about the journalists themselves. White a Chapter 11 filing will toss out union contracts, I'm extremely curious what will happen to the employee pension fund.

That's because Sam Zell ponied up very little of the cash to make the $8 billion purchase -- about $315 million, the bulk of which came in the form of promissory notes.

It was the employee pension fund -- used to finance an Employee Stock Ownership Plan -- that financed the bulk of the deal. As the New York Times noted:
Because of the unusual structure of Tribune’s $8 billion buyout, Tribune’s employee stock-ownership plan holds 100 percent of Tribune’s common equity, regulatory filings show. Common stockholders are generally the first to take a loss in a bankruptcy restructuring, and they usually recover next to nothing.
So in effect, the retirement future of the employees is now toast while Zell personally is relatively unharmed by the strategic business he made to take the company into Chapter 11.

It will take someone far better versed than me in business and law to untangle the implications of this move. Hopefully it will be a Los Angeles Times or Chicago Tribune business reporter who apparently lost his or her retirement because they bought into Zell's sucker's bet.

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