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“Grave Dancer” Takes Tribune Corporation Private

“Grave Dancer” Takes Tribune Corporation Private. 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

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“Grave Dancer” Takes Tribune Corporation Private

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  1. “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

  3. 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

  4. Tribune Deal Structure Stage 1 Lenders $3.95 Billion Tribune $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

  5. Financing Transaction • Financed primarily by debt • Tribune’s 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

  6. Discussion Questions • What is the acquisition vehicle, post-closing organization, form of payment, form of acquisition, and tax strategy described in this case study? • Describe the firm’s strategy to finance the transaction? • What are the principal risks to the long-term success of the transaction? • Is this transaction best characterized as a merger, acquisition, leveraged buyout, or spin-off? Explain your answer. • Is this transaction taxable or non-taxable to Tribune’s public shareholders? To its post-transaction shareholders? Explain your answer.

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