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Sale of Tribune Serves as Warningto Those Working in Corporate U.S.

Posted Sep 12 2008 6:49pm

I originally thought the sale of the Tribune Co. to Sam Zell was not relevant to the broader population, but I have since changed my mind.


Why? Because what is about to happen to the Tribune Company, and more importantly its employees, could set a precedent for the millions of Americans who work for large public companies.


What precedent? If this very public raping of a large American company for the benefit of its shareholders at the expense of employees succeeds, greedy stockholders may use it as a model to suck the lifeblood out of other industries. Make no mistake about this point: A company with a POSITIVE BOTTOM LINE is being sold into massive debt to enrich shareholders.


And even though I stand to gain oh, a couple thousand dollars from my own paltry number of shares in this company, I would PAY a thousand just to stop this stupid deal.


Let me explain in a graphical form what I think is REALLY happening at the Tribune Company, which has made double-digit profits the eight years I worked there:


It’s All About Debt

Tribune’s estimated market value

8.2 billion

Tribune current estimated debt

$3.6 billion

Expected new debt from sale

$8.4 billion

Total debt

$12 billion*

*Some reports have it higher.


How can anyone put a positive spin on numbers like that? If these numbers I culled from various stories are correct, there is a near tripling of debt load here. There are only so many ways to erase it: increase revenue, suck additional revenue from employees or cut costs. I have confidence that the last two methods will be employed, but not the first.


Keep in mind that none of this money is being used to improve the company. Instead, it is going to pay off shareholders unhappy with how much their stock is worth. If shareholders were forced to sell the stock on the open market, Tribune would not gain in debt and could take out a loan to beef up its existing businesses.


Why the Math Doesn’t Add Up

Current annual earnings before interest, taxes, depreciation, etc.

$1.3 billion

Current annual interest on existing debt

$274 million

Total EXPECTED annual interest payments

$1 billion (or more since Tribune’s bond status was downgraded to junk.)


Look how much more money will be needed to pay down the new debt. More than $1 billion dollars a year. Note how close the number is to revenue flow.


This load – and risk – will be on the backs of the employees and NOT the new owner as you will see below:


Giving the Company Away

How much Sam Zell is spending of his own money

$315 million upfront

What Zell gets for it

Control of the company

Sam’s payoff if the company increases in value

With a $500 million option that LASTS 15 YEARS, he can buy 40 percent of the company’s stock, ESOP notwithstanding.

Percentage of company’s estimated value Sam is spending to gain control

3.8 percent

Percentage of total debt Sam is spending to gain control

2.6 percent


If my math here is correct – let me know if I’m wrong – I could buy a company valued at about $2.6 million dollars with just $100,000 down. Try getting a mortgage with that little down in today’s housing market.


What It Will Cost Employees

Current pension fund value

$1.7 billion

Pension Fund to put up 15 percent in deal

$250 million

Percentage of annual pay into ESOP

5 percent

Percentage of annual pay to new cash balance pension plan

3 percent (This money apparently has guaranteed return and is the only good news I can find)

Layoffs or buyouts

Expected around in mid-April with more likely to follow

Sources:The Wall Street Journal;The New York Times;Nikki Finke at L.A. Weekly;The National Center for Employee Ownership

Note: Numbers may vary depending on who you read.


As you can see, employees both current and PAST are putting their pensions at substantial risk without being asked. By the way, I’ve read previously that this may be perfectly legal because

America’s corporate pensions are amazingly vulnerable to boardroom shenanigans. Still, it will be interesting to learn if the pension fund in some way could stop this deal.


By the way, this is not the first time Tribune has messed with our pensions. Last year, it FROZE our ability to give into the fund last year, screwing people like me and lots of friends who only had between 1 to 20 years at the company. When I quit, they found a way to lower my future retirement payout by several more thousand dollars a year than I had been promised. Those who were at the company longer weren’t penalized as deeply, which is a whole other story.


But all of us in the pension fund now face the reality that we may see our benefits cut even further – or erased completely – if the company fails to survive all this debt. So my couple thousand dollar gain in stock value I mentioned earlier might be completely erased if the Tribune Company goes bankrupt. Just ask those folks at United Airlines.


While I believe in media companies, and I am optimistic about their long-term survival, putting our already hard-earned money at risk just to benefit the Chandler family and other investors is nothing less than a final insult to the working men and women of that company. Not to mention it may wreck the financial health of its current and future retirees.


Now do you see why this deal sets such a bad precedent for other Americans working in seemingly stable companies? You now are on NOTICE that everything you worked for may be taken away from you at any time. Don’t forget it.

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