Employees Sue Zell over Tribune ESOP

In a highly publicized move, several well-known Los Angeles Times reporters have filed a class-action lawsuit against Sam Zell over how he structured the ESOP at the Tribune Company (parent of the Times) and how he is now running it. The suit alleges, among other things, that the transaction caused the ESOP to overpay for the shares, that incentives were used to bribe management into pushing for the sale to an ESOP, that Zell got too much of the equity, and that Zell's management of the company, particularly what the employees view as outrageous public statements and behavior, have all been detrimental to their interests as owners.

The ESOP transaction at the Tribune was one of the largest ever, giving the ESOP 52% of the fully diluted equity and Zell 40%. It was highly leveraged, and that debt has now become more difficult to repay as revenues at the Tribune and in the newspaper business in general have taken a severe hit. Given the fact that the suit has been filed by well-known reporters at a high-profile company, it is certain to generate ongoing widespread media coverage.