Tribune employees to pay takeover bill for Zell

(Adds employee comment, background)

By Robert MacMillan and Jessica Hall

NEW YORK/PHILADELPHIA, April 2 (Reuters) - Chicago real estate magnate Sam Zell edged out two billionaires to win the hand of Tribune Co. TRB.N, but it will be the media company's 20,000 workers who pay most of the $8.2 billion price tag.

Tribune, publisher of the Los Angeles Times and Chicago Tribune and television broadcaster, will become privately held with an employee stock ownership plan (ESOP) owning most of the company. Zell will contribute $315 million for the option to get 40 percent of outstanding shares.

"If in fact this is going to be a real partnership, then it could be a really good thing for the Tribune Co. If however it's just an investment vehicle, the employees need to be very, very cautious going forward," said Linda Foley, president of The Newspaper Guild-Communications Workers of America union.

Including debt, the Tribune deal is valued at $13.2 billion. Tribune said it would sell the Chicago Cubs baseball team and a 25 percent interest in Comcast SportsNet Chicago to help pare debt.

"My first thought was have I just co-signed a loan for $12 billion," Bill Salganik, president of The Washington-Baltimore Newspaper Guild, and a health business reporter for The Baltimore Sun.

That caution arises from employees' devastating experiences at companies such as Enron and WorldCom, where their retirement savings -- almost entirely invested in the stock of the companies they worked for -- were wiped out when the companies collapsed.

Some employees worry that the stock plan will hurt them in the long run.

"We have to worry about our retirement and further budget cuts because the company is taking on so much debt," said one employee who declined to be identified.

Tribune and other U.S. newspaper publishers have suffered dips in advertising revenue and circulation as more people use the Internet to get news and entertainment.

The company had been considering a buyout or the spinoff of various divisions after its largest shareholders, the Chandler Trusts, aired their anger over the decline in its stock price last year.

The ESOP gives Zell a creative way to fund the deal and several tax benefits compared with a traditional leveraged buyout that would be financed by debt.

Under the plan, Tribune will contribute money to the ESOP, which will invest in shares of the privately held company. The stock will be disbursed to eligible employees.

Contributions to the ESOP will be treated as paying off principal. As a result, both the principal and the interest can be deducted from the company's taxes -- rather than just interest.