Zell's Big Plans for Tribune

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The tensions may have been exacerbated because the money being made in newspapers these days has increasingly been from locally oriented outfits that aren't as afflicted by Internet competition.

ESOP's Fables?

Still, Zell will be asking employees to start acting like owners who are mindful of the bottom line. He signaled as much in referring to "partnering with the management and employees" in the company announcement of his plans. Tribune CEO Dennis FitzSimons echoed that, noting, "Importantly, our employees will have a significant stake in the company's future." A spokesman for Zell said he was not available for comment on the transaction.

The deal is built on an Employee Stock Ownership Plan (ESOP) that will buy up the company stock. Zell himself will put in just $315 million at first, and will also get a warrant letting him later buy 40% of the stock for $500 million. "Going forward, employees participating in the ESOP will be invested alongside Sam Zell, one of today's most successful investors," crowed FitzSimons. The ESOP's chief edge, however, is tax-oriented: It reduces the company's tax burden enough that Tribune will be able to cover the carrying costs of debt it will take on in the deal.

Tribune will end up as one very debt-heavy company. It will raise some $11.2 billion in debt in two stages to get the deal done, using an initial $4.2 billion for a tender offer for the outstanding stock and another $2.8 billion to refinance its current borrowing. In the second stage, it will raise another $4.2 billion to buy up any remaining stock. Along with company bonds that will remain outstanding, Tribune could start out with a debt burden topping an estimated $13 billion.

Unloading the Cubbies

The company will try to ease that burden by selling one of its trophies, the Chicago Cubs. Tribune, which bought the team and its historic Wrigley Field in 1981 for about $20 million, could get more than $500 million for it now, according to investors who have looked at the team. Already, groups are gathering to pursue the championship-challenged team, with an eye toward improving its fortunes. One such potential buyer, private equity firm chief Thomas M. Begel of Chicago's TMB Industries, says he plans to feed his "long-time affliction"—his lifelong fanship for the team—with a group of fellow Chicagoans that will take it off Tribune's hands for a "formidable bid."

The move may be as much necessity as strategy. Zell is part of a syndicate that owns the Chicago White Sox, the team on the city's South Side. So he probably has to sell off either one or the other.

The Cubs, who were just eight outs away from going to the World Series in 2003 when they bombed, delivered an on-field performance last year that gave them the worst record in the National League. But Begel says they nevertheless posted the second-best attendance in baseball, drawing more than 3 million fans to Wrigley last season. Still, he allows that no buyer could expect to turn an annual profit on the team and would be buying with "a lot of emotion involved." Tribune does not break out the team's financial results.

As he figures out ways to make money on Tribune, hard-headed businessman Zell, however, sees the Cubs as a non-core asset. The big question, for him and for the Tribune employees who now will have a stake in his success, is how many more properties at the company will eventually become disposable?

With Jon Fine
Weber is BusinessWeek's chief of correspondents