Tribune may alter Cubs deal – In bid to advance sale, company could keep more than 5% stake

October 16, 2008

By Ameet Sachdev | Chicago Tribune reporter

Tribune Co. is considering retaining a larger ownership stake in the Chicago Cubs, said sources involved in the deal, as the company explores options to sell the team amid the nation’s worst financial conditions in decades.

With banks reluctant to make loans, Tribune Co. faces increasing risk of prospective buyers dropping out of the auction or being unable to close a deal in the next few months no matter how creditworthy they are. In addition, the higher costs of borrowing could trim the size of the bids.

To address some of the concerns, company officials have tossed out the idea of keeping more than 5 percent of the franchise, said three sources close to the bidding process. In this way, the buyer would have to come up with less cash but still gain controlling interest in the team. When lending markets open up, the buyer would have the option to buy Tribune Co.’s ownership interest.

“Things are very fluid right now,” said a source close to one bidder, who spoke on the condition of anonymity because the sales process is ongoing. “Tribune is looking for ways to get the deal done.”

Tribune Co., owner of the Chicago Tribune and other media properties, is relying on the Cubs deal to pay off, in part, nearly $600 million due in June on a loan that was part of an $8.2 billion transaction that took the company private last year. Prior to the Wall Street meltdown, some predicted that a package of the Cubs, Wrigley Field and related broadcast properties could fetch $1 billion or more.

Tribune Co. Chairman Sam Zell is not only interested in getting top dollar for his trophy asset, but he also wants to the company to pay as little tax as possible on the sale. Tribune Co. faces enormous tax exposure from an outright sale of the team because it bought the Cubs in 1981 for $20.5 million.

To minimize the tax bill, the company proposed a deal structure that would require the buyer to borrow heavily to pay for the team. Such a highly leveraged transaction would be challenging under normal circumstances.

Now, it could be weeks or months before money flows freely again to finance such a deal. One bidder, Mark Cuban, owner of the National Basketball Association’s Dallas Mavericks said last week that, “Even if we wanted to close the day after tomorrow, the banks might not be able to close.”

Cuban suggested that in the current turmoil it might not make sense for Tribune Co. to sell the Cubs. A Tribune Co. spokesman declined to comment.

Still, Zell is not backing off his ambitious tax-avoidance strategy. Under the original deal structure, Tribune would have had to retain a small interest in the Cubs of less than 5 percent to reap tax benefits.

The company is considering a larger minority stake that would give them enough cash upfront and still retain the tax benefits. How large a stake is unclear, sources said.

“It would make sense in these times to retain a larger stake,” Robert Willens, a leading New York tax analyst said. “But as a practical matter, I wouldn’t want to retain more than 20 percent given the highly engineered nature of the transaction.”

The company appears in no rush to finalize a deal. No deadline has been set for the next round of bids. Prospective buyers are still waiting for key financial details about the broadcast properties up for sale.

In addition to Cuban, the bidders include the Ricketts family, which founded online brokerage Ameritrade, Chicago real estate investor Hersch Klaff and two New York private-equity investors.

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