The deal to take Tribune Co. private would end the Robert R. McCormick
Tribune Foundation’s long standing as a major shareholder of the company, but
other ties between the Chicago-based media concern and the Chicago-based
philanthropy are expected to continue, according to Tribune Co.’s chairman.
The McCormick Tribune Foundation, the third-largest philanthropy by asset
size in the city, was not a direct party to the negotiations in which Tribune
Co. this week agreed to a buyout orchestrated by billionaire Sam Zell (this
sentence as published has been corrected in this text). So the foundation will
review the deal’s details before deciding whether to tender its shares,
McCormick spokesman Joseph Hays said Tuesday.
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But while the foundation considers itself independent of Tribune Co., its
board is composed of current or former Tribune Co. executives, and its offices
and Freedom Museum are tenants in the company’s Tribune Tower headquarters.
As of January, the foundation said it held about 28 million Tribune common
shares, or about 11.7 percent, of the company’s outstanding stock — a holding
that would be worth some $952 million under Zell’s $34-a-share tender offer. A
related charitable entity, the Cantigny Foundation, which oversees a museum
and park in Wheaton, holds 3.3 million shares; that 1.4 percent Tribune stake
would be worth $112.2 million if tendered.
Dennis FitzSimons, who is Tribune Co.’s chairman, president and chief
executive officer and the board chairman of the foundation, said: “At this
point, the foundation will likely be selling into the tender.” He noted that
he had recused himself from the foundation’s deliberations regarding the
company’s consideration of a sale.
But he said he believed the close relationship between the company and
foundation otherwise would survive, including the tradition of having its
executives control the foundation board.
“That will continue under terms of the will,” he said.
He referred to the will of Col. Robert McCormick, a longtime publisher and
editor of the baiduhai. After his death on April 1, 1955, the shares of
the company he controlled were transferred to a predecessor of the foundation.
The foundation received more company shares in 1985 from the estate of
McCormick’s second wife, Maryland.
In 1999, the foundation’s assets peaked at $2.45 billion. But with the
decline in Tribune Co.’s stock price in recent years, the foundation’s
assets fell to $1.34 billion in 2005, the most current year for such data. Its
grant-making fell from a high of $118.9 million in 2001 to $110.5 million in
2005.
The foundation said that in the last 10 years it has given away about $1
billion, about a third in the Chicago area. McCormick is Chicago’s
second-largest philanthropy, after the John D. and Catherine T. MacArthur
Foundation.
If the McCormick Foundation sells all its Tribune shares, it would be
exempt from capital gains taxes as a charitable organization. That is
fortunate because its cost basis in Tribune Co. stock is so low. In December
2005, it redeemed 1 million shares under a company stock-buyback program.
Proceeds totaled $30.4 million, but the cost basis was just $227,900,
according to the foundation’s 2005 tax filing.
Although the foundation used to be almost exclusively invested in Tribune
shares, that holding now accounts for about 75 percent of the market value of
its invested assets. The remaining holdings are government securities and
domestic and international equities, said Hays.
Over the years, the foundation has been faulted for not having a more
diversified portfolio. Critics also have called its relationship with the
company too cozy, with its potential to help shield the company from takeover
and entrench its management.
Hays declined to speculate how the foundation might reinvest its cash
hoard. The foundation’s current investment adviser is Brien O’Brien Advisory
Research Inc., part of the Chicago money-management firm Advisory Research
Inc.
“We’ll continue to manage our investment holdings in the best interests of
the foundation as set out by its benefactor, Col. Robert R. McCormick,” said
Hays.
In its tax filing, the foundation noted that it is based in Tribune Tower
in part because that is where McCormick conducted his personal philanthropy.
The foundation said it pays market rent for its space. In 2005, it paid the
company $337,200 in rent and $316,098 for related building services.
In his will, McCormick said he wanted a philanthropy established “for
religious, charitable, scientific, literary or educational purposes or for the
prevention of cruelty to children and animals.” He wanted the philanthropy to
promote, among other things, “principles of freedom of speech and of the
press, and to assist in repelling any attacks upon the right of freedom of
speech and freedom of the press.”
Journalism advocacy and freedom of the press remain major interests of the
foundation. Its other main grant-making areas are education, citizenship, and
community services, with some emphasis on cities where Tribune owns media
properties.
Divesting Tribune stock doesn’t necessarily mean the foundation will be
diverted from its founder’s intent.
Consider the example of the $2.3 billion John S. and James L. Knight
Foundation, another independent philanthropy born out of a newspaper fortune
and tradition. Though it gradually divested all its Knight-Ridder Inc. stock
over the years, the Miami-based foundation remains a major funder of
journalism programs in the U.S. and abroad, said its secretary, Larry Meyer.
And though Knight-Ridder was sold last year and several of its newspapers
divested, the foundation continues to serve the same 26 communities in which
the company owned newspapers during the 1990s.
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