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Grave Dancer Takes Tribune Corporation Private
2
Background

• Tribune Corporation is a media holding company
  consisting of the following
• 9 newspapers, 23 TV stations, 25 stake in
  SportsNet Chicago, and the Chicago Cubs
• Advertising and subscription revenue declining
• Tribune taken private (4/07) in transaction
  valued at 8.2 billion
• Sam Zell, well-known turnaround specialist, is
  catalyst for transaction

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Multi-Stage Deal Structure Key Components

• Stage 1
• Tribune initiates tender offer for 51 of
  outstanding shares
• Tender financed by 250 provided by Sam Zell
• Balance provided by borrowing 3.95 billion
• Stage 2
• ESOP buys remaining shares
• Purchase financed by borrowing 4 billion plus
  65 million provided by Sam Zell
• Zell receives 15-year warrant to buy 40 of
  Tribune common stock at 500 million
• Loans guaranteed by Tribune
• Over time, ESOP will own all Tribune stock
• Tribune converted from C to S corporation

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Tribune Deal Structure
Stage 1
Lenders
Tribune
3.95 Billion
4.2 Billion
.25 Billion
Zell
Tribune Shareholders
126 million shares
126 Million Shares Loan Guarantee
Stage 2
4.05 Billion
Lenders
4 Billion
ESOP
121 Million Shares
.065 Billion
Zell
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Financing Transaction

• Financed primarily by debt
• Tribunes total debt increases to 13 billion,
  including 5 billion already owed by the firm
  prior to the transaction
• Following transaction, yearly interest and
  principal payments comprise almost two-thirds of
  annual operating cash flow
• Zell capital contribution comprises less than 4
  of purchase price
• Concentration of ownership in ESOP and conversion
  to S corporation saves 348 million annually in
  taxes
• Expected proceeds of asset sales (e.g., Chicago
  Cubs, minority stake in SportsNet, and selected
  TV stations) to reduce outstanding debt

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Discussion Questions

1. What is the acquisition vehicle, post-closing
   organization, form of payment, form of
   acquisition, and tax strategy described in this
   case study?
2. Describe the firms strategy to finance the
   transaction?
3. What are the principal risks to the long-term
   success of the transaction?
4. Is this transaction best characterized as a
   merger, acquisition, leveraged buyout, or
   spin-off? Explain your answer.
5. Is this transaction taxable or non-taxable to
   Tribunes public shareholders? To its
   post-transaction shareholders? Explain your
   answer.