By CYNTHIA LITTLETON
Variety
Feds scrutinizing employee ownership plan
Tribune Co. is now facing more scrutiny from the feds, this time for the complex employee stock ownership plan that was the key to financing Sam Zell's 2007 takeover of the newspaper and TV station owner.
Tribune disclosed on Thursday that it received a subpoena for "an extensive range of documents" as part of a Labor Department investigation of the employee stock ownership plan (ESOP) that facilitated Zell's $8.2 billion buyout of the Chicago-based media company.
Tribune disclosed the investigation as part of its regular filings in connection with the $13 billion Chapter 11 bankruptcy proceeding that it initiated in December. In asking the bankruptcy judge to approve additional payments to a law firm in connection with the Labor Dept. investigation, Tribune disclosed in the Thursday filing that it received the subpoena on March 2, and delivered a raft of documents to the feds on March 31.
"We view this as a routine inquiry," Tribune spokesman Gary Weitman said in a statement, according to the Associated Press.
The fate of the ESOP has been one of the primary questions hanging over Tribune as it struggles to reorganize its considerable debt at a highly inopportune moment, given the seizure of the credit markets during the past nine months.
Zell's buyout of Chicago's stalwart media firm was predicated on the ESOP structure allowing the company to save as much as $1 billion a year in tax payments, as employee-owned firms are largely exempt from federal tax obligations.
But from the start, media biz observers said the ESOP structure put an inordinate share of risk about the company's future profitability on the backs of its employees. Zell himself put only $315 million of his own coin into the deal, which earned him warrants to acquire as much as 40% of the company within 11 years.
Some bankruptcy experts have speculated that the ESOP's equity could be wiped out as part of the Chapter 11 reorg.
According to Tribune's filing, the firm handling the Labor Dept. case, Jenner and Block, is also repping the company in another matter pending with the feds, the Justice Department's investigation of former Illinois governor Rod Blagojevich.
Tribune and Zell have been ensnared in that case through the ex-governor's alleged effort to pressure Tribune for political favors (seeking the ouster of at least one Chicago Tribune editorial writer who has been critical of Blagojevich) in connection with a proposed deal for the state to purchase the landmark Wrigley Field baseball stadium, which Tribune has been trying to sell along with the Chicago Cubs franchise. Tribune and Zell have maintained that there were never any improper discussions with the governor's office regarding the possible Wrigley deal.
Tribune Stock Plan Draws U.S. Subpoena
By SHIRA OVIDE
The Wall Street Journal
The U.S. Department of Labor has subpoenaed Tribune Co. in an investigation connected to the media company's employee stock-ownership plan, a key but controversial feature of real-estate mogul Sam Zell's 2007 deal to take Tribune private.
Tribune disclosed the investigation in a bankruptcy court filing on Thursday. The company, which publishes the Chicago Tribune and Los Angeles Times newspapers and owns a string of local television stations, sought bankruptcy protection in December under the weight of $13 billion in debt related to Mr. Zell's buyout of Tribune.
Tribune on March 31 turned over materials in response to the subpoena for an "extensive range of documents," the court filing said. The probe concerns Tribune's employee stock ownership plan, or ESOP.
Mr. Zell's buyout deal involved a structure under which the ESOP became the majority owner of the company, a feature that helped Tribune avoid corporate taxes.
"We view this as a routine inquiry and we are responding by producing the requested documents concerning the ESOP," Tribune said in a statement. A spokeswoman for the Labor Department declined to comment.
The court filing said the investigation concerns the Employee Retirement Income Security Act, a federal law that aims to safeguard participants in employee retirement plans by, among other things, requiring disclosure of funding details and risks.
The Tribune ESOP played an unusual role in Mr. Zell's deal for Tribune. The plan borrowed the billions of dollars used to finance the deal and in turn received all of Tribune's common shares.
The company has said the value of the ESOP will be determined in bankruptcy court, though stock is typically wiped out in the bankruptcy process.
Tribune's ESOP is the subject of a lawsuit filed by current and former employees.
The lawsuit, filed in September, alleges Tribune and Mr. Zell failed to uphold their fiduciary duty to the ESOP.
Jenner & Block LLP, a Chicago-based law firm helping Tribune respond to the subpoena, also is representing Mr. Zell in the criminal probe of Rod Blagojevich, the former Illinois governor who allegedly sought to pressure Tribune to fire Chicago Tribune editorial staffers in exchange for help with a state-financed deal to sell Wrigley Field. Tribune owns the Chicago Cubs baseball team and Wrigley Field.
Write to Shira Ovide at shira.ovide@wsj.com
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