Abstract

http://ssrn.com/abstract=1143533
 
 

Footnotes (185)



 


 



Samuel Zell, the Chicago Tribune, and the Emergence of the S ESOP: Understanding the Tax Advantages and Disadvantages of S ESOPs


Michael S. Knoll


University of Pennsylvania Law School; University of Pennsylvania - Real Estate Department


Ohio State Law Journal, Vol. 70, pp. 519, 2009
U of Penn, Inst for Law & Econ Research Paper No. 08-14

Abstract:     
Samuel Zell's acquisition of the Chicago Tribune Company (the Tribune) in December 2007 using a little-known type of Employee Stock Ownership Plan (ESOP) made headlines. In a complicated transaction, which took nearly a year to complete, the Tribune converted from a subchapter C corporation to a subchapter S corporation, established an ESOP that purchased 100 percent of the company's equity, and sold Zell a call option giving him the right to purchase 40 percent of the company's equity. Press reports claim that Zell's novel structure enabled Zell to outbid other suitors. And financial commentators predict that many acquirers will employ that same structure as soon as acquisition activity picks up. Zell's Tribune transaction also caught the eye of legislators, including Congressman Charles Rangel, who introduced a bill that would increase the tax on indirect claims - such as the one owned by Zell - on the equity of an S corporation held by an ESOP (synthetic equity).

Although ESOPs are more than 30 years old, until 1998, an S corporation could not sponsor an ESOP. Over the last ten years, so-called S ESOPs have grown rapidly, but largely outside of public view. The Tribune transaction has focused a bright light on S ESOPs and there are some who believe that their current tax treatment is too favorable. Yet, there has been little in-depth analysis of the tax treatment of S ESOPs. Accordingly, this paper attempts to fill that gap by presenting a systematic economic evaluation of the tax consequences of using an S ESOP. It seeks to describe both qualitatively and quantitatively the tax advantages and disadvantages of using an S ESOP (with or without synthetic equity) relative to alternative available structures. This paper also estimates by how much the S ESOP structure likely allowed Zell to increase his bid for the Tribune.

Number of Pages in PDF File: 36

Keywords: Employee ownership, Employee stock ownership plans, ESOPs, S corporations, mergers and acquisitions, Samuel Zell, Chicago Tribune, valuation, taxation, synthetic equity, Charles Rangel

JEL Classification: G34, H25, K22, K34

working papers series


Download This Paper

Date posted: June 12, 2008 ; Last revised: June 30, 2009

Suggested Citation

Knoll, Michael S., Samuel Zell, the Chicago Tribune, and the Emergence of the S ESOP: Understanding the Tax Advantages and Disadvantages of S ESOPs. Ohio State Law Journal, Vol. 70, pp. 519, 2009; U of Penn, Inst for Law & Econ Research Paper No. 08-14. Available at SSRN: http://ssrn.com/abstract=1143533 or http://dx.doi.org/10.2139/ssrn.1143533

Contact Information

Michael S. Knoll (Contact Author)
University of Pennsylvania Law School ( email )
3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)
University of Pennsylvania - Real Estate Department ( email )
Philadelphia, PA 19104-6330
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,670
Downloads: 578
Download Rank: 23,952
Footnotes:  185

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.907 seconds