A Delaware bankruptcy court has cleared the way for the $845 million sale of the Chicago Cubs, Wrigley Field, and a 25 percent stake in Comcast SportsNet Chicago. Under the terms of the deal, the holdings will be transferred to the newly created Chicago National League Ball Club LLC in which Tribune will retain a 5 percent ownership equity in the Cubs and the Ricketts family would control 95 percent.
As part of the transaction, on Oct. 12, the LLC would then file for bankruptcy to protect the transaction from any liens and claims as part of the Tribune Co.’s separate Chapter 11 proceedings. The LLC is not expected to be held up in the bankruptcy for more than a few days, clearing the way for Major League Baseball’s approval. The final qwnership transfer of the club would then have to pass through MLB’s Executive and Ownership Committees before needing approval from 75 percent of the league’s 30 owners.The next face-to-face owners meetings where a vote to approve the ownership transfer would occur is scheduled for Nov. 17-19 at Chicago's O'Hare Airport Hilton.
The structure of the transaction is technically not a “sale” with Tribune continuing to own a minority stake. In what is called a “leveraged partnership”, Tribune would avoid hundreds of millions of dollars in capital gains taxes. This past weekend, the Washington Post ran a story saying that federal authorities might look to challenge deal under the grounds that the deal is in actuality, a sale, not an transfer.
Similar tax dodges have occurred recently. In May of 2007, Liberty Media and Time Warner saw the Atlanta Braves sold for $461 million in what is called a cash-rich split-off. The Braves transaction was part of a larger deal between Time Warner and Liberty Media, that saw approx. $770 million in taxes saved between Time Warner and Liberty Media.
In that deal, Liberty Media Corporation (Nasdaq: LINTA, LCAPA) ("Liberty") and Time Warner Inc. (NYSE: TWX) Liberty exchanged approximately 68.5 million shares of Time Warner common stock, for a newly created subsidiary of Time Warner which holds the Atlanta Braves, Time Inc.'s Leisure Arts, Inc. and $960 million of cash.
While the figures changed since this flowchart was initially created, select the image below to see how the transaction worked, with the Braves as a small part of the transaction.
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