The die is cast.
But Tuesday?s landslide shareholder endorsement of Tribune Co.?s $8.2 billion plan to become an employee-owned, tax-exempt S corporation still has considerable risks.
“It is very highly leveraged; there?s very little getting around that,” Moody?s Investor Services Vice President John Puchalla said about the $13 billion debt load Tribune will take on amid declining industry revenues. “It?s a pretty highly risky transaction.
“Tribune is not without its strengths, though,” Puchalla added, stressing that debt reduction is key to the plan?s long-term success. “It generates a substantial amount of [revenue] every year and has assets that it can sell to help pay down the debt.”
The phased deal, expected to close by year-end but which can still be derailed by adverse Federal Communications Commission rulings or by “material adverse effects” affecting lenders? commitments, invokes a debt-financed buyback of company public stock at $28 per share (for the Employee Stock Ownership Plan) and $34 per share (the remainder) that will leave nonunion employees as majority owners of the corporation.
It would also make ESOP employees ? including hundreds at The Sun ? the major beneficiary of the conversion, if revenues can be increased.
Deal architect and Chicago real estate mogul Sam Zell, whose $315 million contribution to the transaction makes him board chairman of the new entity with the option to buy 40 percent of the company?s stock for $500 million, sees conversion as key to revival.
“Despite the recent upheaval in the credit markets, my view of the company as an investment has not changed,” Zell said after the vote, which saw Tribune?s stock price close at $27.98 ? $6.02 below Zell?s purchase price.
Among its numerous assets, Tribune owns the Chicago Tribune, the Los Angeles Times and The Sun newspapers, as well as 23 broadcasting stations ? any of which could be sold if financing falters due to unrealized projections.
“There is some speculation coming from financial analysts that there may be the need to sell off assets to make the deal work,” Newspaper Guild President Linda Foley said. “If that?s the case, that could very well affect The Baltimore Sun. … It could end up in the hands of locals.”
Tribune?s operating revenues have been trending down. For the second quarter of 2007, they were 7 percent lower compared with the same period in 2006.
