Rich guys playing games

In my haste this morning, I neglected to note today's best Tribune-related story: The LAT's revelation that in the event the company is sold, up to 50 senior executives and key employees would collect between $200 million and $269 million in exit money if they lost their jobs (why was this on lowly page 8 of the biz section?). Tribune CEO Dennis FitzSimons could be eligible for more than $10 million (covering salary, bonus and restricted stock). The Chandlers place the exit total at $269 million in their filing to the SEC, but a source told the Times that it was closer to $200 million - and that the Chandlers had inflated the number in order to embarrass Tribune executives (c'mon kids, play nice!)

Meanwhile, Newsweek's Allan Sloan points up the Chandler family's decision not to buy back Tribune stock seven months ago for $32.50 - they had been citing breakup estimates of $40 - only to now make a last-minute bid for the entire company at a mere $31.70 a share. And get this - the Chandlers say that $31.70 is a good deal for shareholders because the stock is really worth $27. Er, are we missing something here? How do you go from $40 to $27 with a straight face?

I think the real reason the Chandlers didn't participate in the [$32.50] buyback is as much the way it was structured as its supposedly inadequate price. First, selling would have required the famously taxophobic family to pay capital gains taxes. Second, fully participating in the buyback would have reduced the Chandlers' stock holdings to the point where the family would have lost its guaranteed seats on Tribune's board.

Sloan didn't seem wild about the Broad/Burkle plan either.

Tribune would borrow about $11 billion to pay $27 a share in cash to holders, with the rest going to refinance existing debt of the company, which would still have publicly traded stock. Broad and Burkle estimate that the stock of what we'll call New Tribune would fetch $7 a share in the market. Hence their value of $34 - the $27 in cash plus the stock. But what would Broad and Burkle pay for their piece of the company? By my math, a lot less than $7. Here's why. Tribune has about 240 million shares outstanding and Broad and Burkle would own about a third of New Tribune. That means they'd be buying about 120 million New Tribune shares. They're putting up the aforementioned $500 million. Thus, they're paying about $4 for stock they say would sell at $7.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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