With less than a week to go before Tribune Co. is scheduled to conclude its six-month strategic review, Los Angeles billionaires Ron Burkle and Eli Broad may be back for more.
The two, who paired up for an earlier bid to restructure the media company, aren't happy that Tribune is huddling with Chicago real estate magnate Sam Zell, and they may want to submit another bid of their own, said sources close to the situation.
Burkle and Broad sent a letter over the weekend to the board of the Chicago-based media conglomerate expressing their wish to see Zell's proposal and the non-public company data behind it so they can determine whether to put together a competing plan to outbid him, these sources said.
"Nobody gave us a chance to understand [the Zell deal]," said a person close to the Burkle-Broad camp. "We think it would be wise to open up to us what they opened up to Sam to see if we can create more value. We just want to remind them that it's their fiduciary duty to shareholders to get the best deal."
A spokesman for Tribune Co., which owns the Chicago Tribune, Los Angeles Times, Chicago Cubs and other assets, declined to comment. Reached at home, Northern Trust Chairman William Osborn, the head of the special committee of independent Tribune directors charged with overseeing the company's strategic review, said he hadn't yet seen a letter.
A spokeswoman for Broad wouldn't comment, and spokespeople for both Burkle and Zell couldn't be reached.
As previously reported, Tribune's special committee is leaning toward Zell's proposal, which is worth about $33 a share and is structured around an employee stock ownership plan, or ESOP. The committee is also considering a plan put forth by management to spin off the company's broadcast assets and take on debt to fund a dividend for existing shareholders in the range of $18 to $20 a share.
The committee has set itself a deadline of March 31.
Burkle and Broad, who early last year expressed an interest in Tribune Co.'s largest paper, the Los Angeles Times, were among a handful of bidders that took part in a formal four-month auction process for the whole company that ended in January.
They and California's wealthy Chandler family, which is Tribune's largest shareholder with a 20 percent stake, submitted the only two proposals that involved the whole company. The Carlyle Group, a private equity firm in Washington, D.C., put in a bid for the company's television stations valued at around $4 billion.
Burkle and Broad previously proposed what they have called a "public leveraged buyout." Under the plan, which they said was worth $34 a share to existing shareholders, they would have invested $500 million in equity for a 34 percent stake in the company. Tribune would then have taken on $9.8 billion in debt and paid out a $27-a-share dividend to shareholders. Investors would also have been left with "stub" shares of Tribune stock, which Burkle and Broad calculated would be worth $7 each initially and $12 over time.
After the auction ended in mid-January, Tribune's special committee eventually rejected both the Burkle-Broad offer and the Chandler proposal, which valued the company at $31.70 a share. The special committee then began focusing on the management-led "self-help" deal.
In February, Zell emerged as a bidder with a plan in which he would invest at least $300 million in equity. The company would then create an ESOP, which would borrow billions more to fund the buyout. The biggest difference between the Broad-Burkle proposal deal and Zell's is this: An ESOP structure would create big tax savings, which would ensure Tribune Co. would have more cash flow to cover the debt.
The source close to Burkle and Broad said Zell would need to have seen non-public financial information on Tribune's retirement plans in order to fashion a deal based on an ESOP. Their view is that they should be able to see that information, too, so that they could have a chance to outbid Zell.
"We followed the rules and did everything they asked," said the source. "Then they went in the back room with a single buyer."
One source close to the company, however, countered that Burkle and Broad have had ample time to ask for any more information they might need to submit a new bid and would have been given whatever Zell has gotten, had they asked.
"Everybody has been given the information they asked for," this source said. "But not everybody asked the same questions."
Still, another close observer said the board will likely have to take Burkle and Broad seriously, even if the duo simply wants to mimic Zell's ESOP structure in a deal worth a bit more to shareholders.
"I think they have to do what they can do to get the best deal," this source said. If Burkle and Broad can take Zell's structure and make more out of it, "That would be something the board would have to consider."
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