Friday, April 10, 2009

Tribune ESOP Leads to Subpoena

The Wall Street Journal

The U.S. Department of Labor has subpoenaed Tribune Co. in an investigation connected to the media company's employee stock-ownership plan, a key but controversial feature of real-estate mogul Sam Zell's 2007 deal to take Tribune private.

Tribune disclosed the investigation in a bankruptcy court filing on Thursday. The company, which publishes the Chicago Tribune and Los Angeles Times newspapers and owns a string of local television stations, tipped into bankruptcy protection in December under the weight of $13 billion in debt related to Mr. Zell's $8.2 billion buyout of Tribune.

Tribune on March 31 turned over an "extensive range of documents" in response to the subpoena, the court filing said. The probe concerns Tribune's employee stock ownership plan, or ESOP. Mr. Zell's buyout deal involved a complicated structure under which the ESOP became the majority owner of the company, a feature that helped Tribune avoid corporate taxes.

"We view this as a routine inquiry and we are responding by producing the requested documents concerning the ESOP," Tribune said in a statement. A spokeswoman for the Labor Department declined to comment, in line with agency policy to neither confirm nor deny investigations.

The court filing said the Labor Department probe concerns the Employee Retirement Income Security Act, a federal law that aims to safeguard participants in employee retirement plans by, among other things, requiring disclosure of funding details and risks.

The Tribune ESOP played a crucial and unusual role in Mr. Zell's deal for Tribune. The plan borrowed the billions of dollars used to finance the deal and in turn received all of Tribune's common shares. The company has said the value and fate of the ESOP will be determined in bankruptcy court, though stock is typically wiped out in the bankruptcy process.

Tribune's ESOP already is the subject of a lawsuit filed by current and former company employees. The lawsuit, filed in September, alleges Tribune and Mr. Zell failed to uphold their fiduciary duty to the ESOP.

On top of its bankruptcy filing, Tribune has become embroiled in other matters. The company has been caught up in the criminal probe of Rod Blagojevich, the former Illinois governor who allegedly sought to pressure Tribune to fire Chicago Tribune editorial staffers in exchange for help with a state-financed deal to sell Wrigley Field.

Tribune owns the Chicago Cubs baseball team and Wrigley Field, the team's home stadium. Mr. Zell, Tribune's chairman and chief executive, has been interviewed by federal prosecutors building their case against Mr. Blagojevich.

Jenner & Block LLP, a Chicago-based law firm helping Tribune respond to the Labor Department subpoena, also is representing Mr. Zell in the Blagojevich probe.

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