Tribune Tower? Nice Condo With View

A fews weeks ago I was chatting with a Tribune Co. editor about the resale value of his office within the Tribune Tower. We joked that the space will be worth a couple of million dollars, once Sam Zell figures a way to convert "The Tower" into condos.
That's no joke anymore.
Today, Zell informed the troops what he's already told creditors -- everything the Tribune Co. owns is in play.
This is especially true of the media concern's "hard assets" such as office buildings, printing plants, TV stations and anything else that will tip the interests of developers and real estate investors.
Tribune CEO Zell says he's in no hurry. By that he means the company won't be pressured into selling anything at a fire sale price in order to meet its hefty debt repayments and other obligations (which are in the multi-billions). Instead, Zell will seek to maximize the value of every parcel, while minimizing the impact of taxes.
That's how you get to be a billionaire.
A Tribune Tower transaction could be sliced a couple of ways.
The Tribune Co. could sell outright and lease back the space on a long term basis. Or it can sell and agree to vacate in a couple of years for cheaper office space somewhere in the area. God knows there's plenty of such space around.
Or it could maintain an equity stake and partner with a developer who turns the place into a high-end condominiums/retail palace on North Michigan Ave. Maybe they end up calling it "435 Mich Plaza", or something kitschy like that.
(You don't knock down the actual Tribune Tower, but perhaps redevelop the land that's immediately east of the building. And nagging details, like zoning restrictions, can always be hammered out, eh?)
One thing is certain, the day when newspaper companies reside in Stately Wayne Manor is done. Already many newspapers are located in industrial parks or, like the Chicago Sun-Times, are operating from rented office space.
The Los Angeles Times' building complex, also owned by TribCo., is on the chopping block, too.
I suspect Zell's people are busy sizing up the other Tribune properties with an eye toward selling them or "maximizing" their value. So look for further consolidation of news operations under more affordable roofs, and the eventual dismantling or consolidation of printing operations.
I won't even get into outsourcing copy editing and other centralized editorial and business functions like the Orange County Register.
None of this should comes as a huge surprise. Since taking control of the Tribune Co., Zell has basically said that he's open to selling anything and everything at the right time and for the right price.
Going forward, the question is this: Will Zell plow money from real estate sales back into saving and improving Tribune Co.? Or is this just a thinly-veiled, albeit orderly, liquidation playing out before our very eyes?
Either way, I see condos in the Tribune Tower's future.

Weekend Wonder: Who Buys TribCo?

Going to be lots of buzz this weekend about the fate of the Tribune Co., which is now weighing two buyout offers. The Tribune committee that's evaluating the bids may give itself a little more time to contrast and compare the bids. The committee hoped to have a decision by Saturday. We'll see.
In one corner there's the old grave dancer Sam Zell (see post below). His challengers are two Los Angeles-based billionaires, Eli Broad and Ron Burkle. Right now, the Broad-Burkle bid is offering $34 a share, a buck higher than Zell.
Neither group is putting a ton of their own money into the bids--especially when you considered the total value of the deal may hit $12 billion. Zell is offering $300 million; Broad/Burkle offer $500 million cash.
Let's face it, the bulk of the risk will be borne by the newly-created Employee Stock Ownership Plan (aka the Tribune Co. employees.) The ESOP is the primary vehicle to make the buyout whether Zell or the other guys buy it. And the financing fun doesn't end there because management may have to ante up some cash to play, as may the Tribune charitable trust or a private equity fund.
If Zell wants to make a deal, he'll likely have to sweeten the pot by matching or exceeding the West Coast cash offer.
All things being equal, I suspect Tribune's braintrust would rather go with a more patient Zell--who obviously believes that, at the right price, there's longterm value in most of TribCo.'s brands and assets. Broad and Burkle are most interested in the LA Times, making the rest of the company ripe for fast spin-offs, sales and wholesale slaughter.
At the end of the day, TribCo brass may decide to cut this baby in two by agreeing to spin off the LA Times to Broad/Burkle and give Zell and his ESOP the rest.
Stranger things have happened.

By the way, if you have the time check out tonight's (Friday) version of Chicago Week in Review with Joel Weisman. Fun panel that includes Sport Illustrated's Lester Munson, Channel 7's Charles Thomas, Sun-Times newsman Abdon Pallasch and me (had to throw that in).
Ah yes, the lively art of conversation. Panel touches on the Tribune sale, current Chicago Police scandal, Cubs and Sox, and much more! Check it out at 7 P.M. (CST) tonight on Channel 11.
Until next time, have a great weekend.

TribCo. ESOP One Zell of a Deal

In the grey world of commerce, Sam Zell is what passes for a free spirit. He sports a beard, wears open-collared shirts and drives motorcycles. Oh yeah, he's also pretty good at making a buck, amassing a personal fortune of over $4 billion and counting.
Right now, it looks like Zell is close to making a deal to acquire the publicly-traded and shell-shocked Tribune Co., which has been on the auction block for about six months. The real estate mogul's plan: Acquire TribCo.'s outstanding shares and take it private in a transaction valued at nearly $8 billion, or $33 per share. That's a 6 percent premium over Trib's stock price.
To do this, Zell will basically invest about $300 million of his own treasure, while installing a newly-created Employee Stock Ownership Plan (ESOP) that will presumably be used as a vehicle to borrow money from lenders, or other sources, and finance the bulk of the buyout.
An ESOP is not without its risks and problems, but right now the Tribune Co. could do alot worse than go with Zell's plan. Indeed, the only other viable option appears to be busting up the joint, selling it in parts, suffering some hefty tax bills and ultimately getting little back in return.
Here's a quick assessment of the good, bad and ugly of this potential Zell deal.
The Good: Let me hear you shout, "Freedom!" Going private gets Wall Street off the Tribune Co.'s back and that will enable management to accelerate plans to invest and take the company's newspapers, TV and radio stations into the digital age. As a private concern, management gets elbow room to expand, experiment and, yeah, make mistakes without being crucified on CNBC by industry analysts and fund managers. Moreover, the very unhappy Chandler family (which holds about 20 percent of Tribune stock and ignited the company's auction meltdown) gets paid off and goes away. What's more, the Zell plan keeps the company intact, at least in the short run, and that minimizes the needs for wholesale head-chopping and other cost reductions.
The Bad: Debt, debt, and more debt. Right now, TribCo is sitting on $9-billion in debt (about $4 billion in longterm debt) and has a market capitalization of around $7-to $8 billion. That's already rocky. The Zell plan calls for adding even more debt from borrowing (even though there are tax advantages to having the ESOP do it) and that's going to be a much heavier load.
Frankly, I don't see how TribCo takes on much more debt (and pays a one-time dividend to shareholders that's also part of the Zell plan) without recouping cash by spinning off some properties, like the Chicago Cubs. Heck, they're standing in line to buy the Cubbies, so why not sell them for nearly a cool billion and, as part of the deal, work something out with the buyer so that WGN radio still gets to broadcast the games for the next decade or so?
Another concern: An ESOP only works well if the Tribune Co.'s profits grow. However, should the company's earnings continue to erode, then the ESOP-related debt burden is twice as heavy because it hurts the corporation's credit ratings and smacks employees, who shoulder the burden of being majority shareholders.
Also, employees should know what they are getting into (not that they may have a great deal of choice). It is possible that workers will have to make concessions in order to get the ESOP up and running. While I doubt that means massive job cuts, it may require cutting current compensation packages by reducing benefits like contributions to retirement plans, or raising health care co-payments. There's also the issue of fairness in terms of how an ESOP is administered and while there are federal guidelines overseeing plans, there's still a possibility of some workers getting short-changed or screwed.
To learn more about the impact an ESOP might have on TribCo workers go to the National Center for Employee Ownership and click on the Hot Topic story regarding the Tribune's possible ESOP. Good stuff.
The Ugly: Bear in mind, this deal may not go through. Lots of potholes can trip up Zell's ride. One of the most dangerous is the possibility that federal regulators will not allow the new TribCo owners to keep the waiver that allows it to own a newspaper and TV station in the same market. If the feds say no, that dilutes the value of the deal considerably.
The press likes to wax poetic about how great employee ownership can be. That may be so, but it's very tough for a large company to convert to employee ownership. Too many internal changes are needed. Management and workers have to relate to each other in different ways and at different levels.
That was one of the major problems at United Airlines, which was also employee-owned, until it went bankrupt. (It's out now, but as a traditional publicly-traded company)
Now, the Tribune is not highly unionized and that could work in its favor. Still, should factions form and internal strife grow, an ESOP is doomed.
Yet despite all this uncertainty, Zell is tossing the Tribune a lifeline.
Sure, it's going to be messy. And sure, he's going to make his millions and then some. And he will likely sell out in a few years.
But right now, the free-wheeling Zell is the man with the plan and enough cash in hand to steer the Tribune Company out of this very rough patch.

(Full disclosure, I regularly contribute to Chicago Magazine, which is owned by the Tribune Co.)