Mystery surrounds lead bid for Tribune

As the clock ticks down on Tribune Co.'s self-imposed deadline on Saturday for auctioning the big media company, mystery still surrounds the apparent favored bid, from Chicago real estate magnate Sam Zell and its use of a newly created employee stock ownership plan.

Zell, 65, has said little publicly except that he would invest $300 million in cash and become the minority partner of a stock ownership plan that would buy up the company's shares and take Tribune private. He declined an interview request yesterday.


A Tribune spokesman said the board of directors is expected to make a decision by Saturday on the fate of the company, the parent of the Chicago Tribune, Los Angeles Times and The Sun, along with other newspapers, 23 TV stations and the Chicago Cubs baseball team.

An executive within Tribune said that the board was to meet tomorrow and was expected to announce a deal with Zell.


Financial-news site reported yesterday that Los Angeles billionaires Eli Broad and Ron Burkle, who complained last weekend that Tribune was giving their bid short shrift, had resumed talking with Tribune and could make a counter-bid before the deadline. Broad and Burkle did not return calls for comment.

"The situation is very fluid," said another person close to the negotiations.

Some hints about the structure of the Zell bid have surfaced in conversations with several people familiar with the auction, all of whom declined to be identified because the process is supposed to be confidential.

Those hints, together with comments from finance and legal experts, suggest ways that a Zell buyout could work. Until Zell or Tribune supplies more details, any such picture is necessarily speculative.

Zell values his bid at $33 a share, according to a person familiar with the bidding. With 240 million Tribune shares outstanding, that implies a price of nearly $8 billion, not counting the nearly $5 billion in debt on Tribune's books.

The debt could be assumed or replaced with new debt, but either way, Zell would have to raise about $12.5 billion to accomplish the buyout.

Lenders would demand at least $2 billion in equity and probably more, meaning that $10 billion is roughly the maximum amount that could be borrowed, according to a New York investment banker who declined to be identified because his firm has worked with some of the parties involved in the auction.

One possible source of the funding is the McCormick Tribune Foundation, the company's second-largest shareholder, with 13 percent of the stock. If the foundation reinvested its proceeds from the buyout into the private successor company, that would provide about $1 billion in additional equity.


Another possible source of equity: Tribune's defined-benefit pension funds, which held assets of $1.76 billion as of Dec. 31, according to a company filing.

The plans - including one covering employees of Times Mirror Co., the Los Angeles Times' parent before the 2000 sale to Tribune - have mostly been frozen. Since then, Tribune employees' main source of retirement savings is 401k investment plans, to which both they and the company contribute.

In exchange for its role as the borrowing vehicle, the new employee stock ownership plan, or ESOP, would receive a significant ownership stake in the new company. The stock would be pledged as collateral for the loans and would be released into the employees' accounts as the loan was paid down.

Thomas Mulligan writes for the Los Angeles Times. Times reporter James Rainey contributed to this article.