Sent: Friday, April 13, 2007 7:34 AM
Subject: Update
Dear Fellow Employee,
As expected, the transaction we announced last week has gotten a lot of media coverage. Much of the coverage is good, but some of it is inaccurate, and that has created some confusion among our employees.
The attached letter appears in today’s Wall Street Journal and serves as a response to an op-ed piece published in the newspaper earlier this week. It reinforces the critical components of the transaction and some key ways in which it benefits Tribune employees.
We plan to do extensive communication regarding the ESOP, and we’ll continue updating information on the employee website available through TribLink and tribuneathome.com. In addition, I will be visiting as many business units as possible in the weeks ahead to give you more information about the transaction and take your questions.
Sincerely,
Dennis
Dear Editor:
I feel compelled to respond to Holman Jenkins’ April 11 satirical opinion piece “Lucky Me,” ostensibly an unsent email to Tribune employees from Sam Zell.
First, his characterization of the transaction as forcing employees to “double down” is simply wrong. Our employees currently own about 23 million shares of Tribune stock, 15 million of which reside in 401(k) accounts. Along with all other shareholders, they will benefit from this transaction, receiving $34 per share in cash, for a total of $782 million. They are not required to reinvest this money in Tribune and can diversify it any way they wish.
Furthermore, existing employee retirement and pension benefits are entirely secure. Tribune’s ESOP will not require employees to make any investment in the company. The ESOP will be funded entirely by new company contributions.
In addition, in 2008, the company will provide employees with a new package of retirement benefits with three components:
A Cash Balance Plan, funded entirely by the company with an annual contribution equal to 3% of an employee’s eligible compensation, effectively providing a “floor” retirement benefit.
Annual allocations from the ESOP with an initial target of 5% of an employee’s eligible compensation.
A 401(k) plan, to which employees can contribute up to the maximum allowed by the IRS.
With regard to the description of Sam Zell’s $590 million “option” to buy 40% of Tribune, it’s important to understand that he will have an option to buy 40% of what will then be a highly leveraged company – not the $8 billion company Tribune is today. The day after the transaction closes, 40% of the equity in the company will be worth far less than the $590 million Mr. Zell would have to pay for his stock. His option has value only if the company performs and pays down its debt; that success will similarly increase the value of the ESOP—in which case our employees benefit along with Mr. Zell.
Finally, the column implies that the ESOP trustee failed to get a “fairness opinion” prior to the transaction. That, too, is wrong. The ESOP Trustee did, in fact, obtain a fairness opinion on both the price of the shares purchased by the ESOP and the relative price Mr. Zell will have to pay to obtain his 40% stake in the company.
Like all media companies, Tribune faces risks and challenges in the days ahead. We will need to be aggressive in transforming the company to thrive well into the future and to deliver returns for employees (and Mr. Zell). To be clear, if this deal is good for Sam Zell, it will be even better for Tribune’s employees.
Sincerely,
Dennis FitzSimons
Chairman, President and Chief Executive Officer
Tribune Company
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