One of the trickiest issues will be how to handle a financing scheme Zell used to buy Tribune that relied on a tax-exempt employee stock ownership plan, known as an ESOP. Although employees had no say over how the ESOP was used, Tribune's board approved Zell's bid, which used the ESOP as a vehicle through which he borrowed hundreds of millions of dollars to tax-efficiently fund the transaction. The scheme allowed Zell to pony up just $315 million of his own cash to wrest control of the company and made employees technically Tribune's owners.
But ownership came at a price: Tribune cut back its 401(k) contributions and instead committed to use a portion of its payroll to pay down the hundreds of millions in debt that a trust set up for the ESOP used to buy Tribune shares, according to employee stock owner plan expert Corey Rosen. "It was like a mortgage that you use to buy a house with no money down," says Rosen, who wrote a report that goes into detail on Tribune's ESOP arrangements.
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