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Paul Kiesel
Paul Kiesel
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Sam Zell the Grave Dancer: A Plan to Devalue the Tribune Co. in a Plot to Take Over Its Assets

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A letter was written by Sam Zell to Tribune Company employees earlier this year discussing the value and intelligence behind the Employee Stock Ownership Program’s (ESOP) private transaction of Tribune Company assets in December 2007.

In the letter titled "Call Me Sam," Mr. Zell falsely addresses the reality of the acquisition of the Tribune Company by its employees, and distorts the truth surrounding the $13 billion of debt that was increased due to the transaction:

Dear Partners,

When we close the going-private transaction in December, our total debt increased to nearly $13 billion. I put $315 million behind that debt, which was underwritten based on Tribune’s historical performance — a level of performance, incidentally, that I believe we can surpass. The employees — you — then acquired 100 percent of the company. I acquired an option buy 40 percent of the company for $500 to $600 million within the next 15 years.

Let me clarify the most common misperception I’ve heard on the ESOP: Employees do not contribute any money toward the plan. What would have been discretionary company contributions to 401(k) accounts going forward are what’s financing the ESOP.

Over the next 10 years, if we perform to the level of our expectations, we will have paid down a significant amount of debt. Our projections assume cash flows in line with 2007 and expectations that newspaper revenues will decline and that broadcast and interactive revenues will increase.

In the end, you and I, together, will own a collection of assets worth billions of dollars, the majority of which will be allocated to employees.

You will still have a 401(k) account that you may elect to fund and the Cash Balance Plan. You will not have invested one nickel in the ESOP.

In all my years of doing deals, this is one of the best risk/reward ratios I’ve ever seen [. . .]

Sam Zell, Letter to Tribune Employees (2008)

The only person who saw the risk-to-reward ratio as being the "best I’ve ever seen" was Sam Zell, because he was the primary beneficiary of the transaction. He controls a company that is owned by its employees, he has since received millions in tax breaks as he transformed the company from a C-corporation to an S-corporation. Financially speaking, he has little at stake, and much to gain. He’s basically gambling with someone else’s money, in this case, a company’s worth of someone else’s money.

The Tribune Co. is worth much less than the ESOP paid for it and as Mr. Zell continues to poorly manage the Tribune Companies’ assets (Los Angeles Times, Chicago Tribune, Newsday, etc., etc.; i.e. compare 2006, 2007 and published quarterly revenues from 2008 to see the financial declivity of the Tribune), he only hurts the people who actually own the company: The employees.