June 23, 2007
The Tribune Takeover
With Congress worrying so much about in imposing a surrogate double tax on investment fund managers, perhaps they should look at ESOPS. Zell is using an ESOP/Sub S structure to unwind a double tax on the Tribune Company and use the tax proceeds to fund his takeover. No a murmur in Congress. The structure enables Zell buy the company with extreme leverage and little downside risk. The risk is borne by the employees. If Zell cannot turn around a company that is hemorrhaging money (and he has never run a newspaper), the employees lose big and he loses $250 m (a pittance). If he succeeds, he hits big, will make a fortune, and the employees will show modest or comfortable gains. The lesson, long ignored, is that we need a tax system that is more neutral on business incentives.
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