ESOPS Likely to Suffer First in Tribune Bankruptcy

Graph_down Chicago is NOT the place to be these days (of course people from Milwaukee already know that) — especially if you are a corrupt politician or a financially-stressed newspaper. On the newspaper side of things — Elizabeth Dale (Florida) writes to tell us that the ESOP angle of the The Tribune Company bankruptcy is truly a mess.

She points us to this story from the New York Times Deal Book:

The possibility of a bankruptcy filing at Tribune Company is an embarrassing development for Samuel Zell, the real-estate mogul who took the media company private last December.

But it is likely that Tribune’s employees — or, more specifically, the employees’ stock-ownership plan — would take the first hit.

Because of the unusual structure of Tribune’s $8 billion buyout, Tribune’s employee stock-ownership plan holds 100 percent of Tribune’s common equity, regulatory filings show. Common stockholders are generally the first to take a loss in a bankruptcy restructuring, and they usually recover next to nothing.

Mr. Zell, by contrast, supplied mostly debt in the complex transaction, putting him higher in line to get paid. His $315 million investment in the Tribune deal consisted of a $225 million promissory note; the rest was for warrants to buy about 40 percent of Tribune’s stock in the future.

Great, another self-centered corporate CEO looking out for himself and screwing the employees of his company. I guess we should be thankful that at least he is not asking for a bail out.

More about this story here.

Cross posted at Workplace Prof Blog.

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Unions, As Shareholders, Use Bailout to Push Executive Compenstion Reforms

Unionyes My labor and employment law colleague, Phoebe Williams, who also teaches business associations, brings to my attention the roles unions, as shareholders, are seeking to play in the current government bailout scheme.

According to the Risk and Governance Blog:

The Laborers’ International Union of North America and the International Brotherhood of Teamsters are filing new proposals that seek compensation reforms at companies that participate in the U.S. Treasury Department’s bailout program.

In the supporting statement for these 2009 resolutions, the labor funds argue that the pay restrictions in the Treasury’s Troubled Asset Relief Program (TARP) “fail to adequately address the serious shortcomings of many executive compensation plans.” Instead, the unions urge directors to adopt “more rigorous executive compensation reforms that we believe will significantly improve the pay-for-performance features of the Company’s plan and help restore investor confidence.”

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Priorities for the Next President: Corporate Law

One of the principal things a new administration is going to have to address in the area of corporate law is how to encourage business managers to properly assess the long-term risks facing their businesses, and to manage those risks so that their businesses are sustainable in the long-term.  The need for U.S. businesses, on which Americans rely for jobs as well as many basic goods and services (such as banking and insurance), to appreciate and guard against the long-term risks associated with their business activities should be evident from the current financial crisis, which stemmed in large part from financial institutions’ failure to appreciate and guard against the risks associated with the complex mortgage-backed securities and derivative instruments they held and the inevitable bursting of the housing bubble.  As a consequence, Americans not only worry that their investments (including retirement and life savings accounts) held by these financial institutions might be at risk, but they also question the long-term stability of the U.S. economy.

So what should a new administration do to make businesses better appreciate, and protect themselves from, the long-term risks associated with their businesses?

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