CHICAGO — Tribune Co.'s ill-fated employee stock ownership plan is toast.
In a memo to employees announcing a new retirement plan Tuesday, Chief Administrative Officer Gerry Spector said the ESOP was likely to be terminated when the media conglomerate emerged from bankruptcy protection.
That's not a surprise to close watchers of Tribune's bankruptcy case. It became clear months ago that the banks and other investors that financed Chicago billionaire Sam Zell's 2007 leveraged buyout of the company probably would take over ownership from Tribune's employees when the reorganization plan was filed.
But the announcement is still significant in that it answers the question of whether employees would end up getting even a sliver of a reorganized company. That might have allowed Tribune, which owns the Los Angeles Times, Chicago Tribune and other media properties, to maintain some of the tax breaks that were at the heart of the decision to center the leveraged buyout on what's known as an S-Corp ESOP. Eliminating the plan signals that Tribune management and the company's creditors figured that the complexity of keeping the ESOP in place was more costly than paying taxes.
Tribune employees still need a retirement plan, though, so instead of the ESOP, the memo said, the company will set up a new 401(k) retirement plan that will match the first 2% of pay dollar for dollar and the next 4% at 50 cents per dollar. The company also will institute a discretionary profit-sharing plan that will "maintain a connection between company profitability and employee incentives." The company said it would make a 3% allocation to the cash balance accounts of eligible employees for the 2009 plan year.
Oddly enough, the decision to eliminate the ESOP won't stop employees from getting their first ESOP share allocations as scheduled at the end of this year. It's just that those allocations won't be worth the paper they're printed on because of the bankruptcy.
Appraisal firm Duff & Phelps recently valued a share of Tribune stock held by the ESOP at zero. Nevertheless, employees soon will receive a letter in the mail informing them of how many of these worthless shares they were allocated for 2009.
Tribune, which is based in Chicago, filed for Chapter 11 bankruptcy protection in December.