Zell wins bid for Tribune, Cubs on block
NEW YORK (Reuters) - Chicago real estate magnate Sam Zell beat out two Los Angeles billionaires in a deal for Tribune Co. that would take the media company private but saddle it with $8.4 billion of new debt.
The bid values Tribune at $34 per share, or $8.2 billion. Zell would pay $315 million and eventually get an option to buy 40 percent of the company. The rest will be owned by employees, financed by company contributions to an employee stock option plan and debt.
The publisher of the Chicago Tribune and the Los Angeles Times said it would sell the Chicago Cubs baseball team and a 25 percent interest in Comcast SportsNet Chicago to help pay down debt that is set to exceed $13 billion.
The deal ends months of uncertainty as Tribune tried to find a buyer, only to meet with tepid interest because of falling circulation and advertising revenue in the U.S. newspaper industry as readers flocked to the Internet.
But using debt and the stock ownership plan creates unease among some of Tribune's 21,000 workers who question whether it is too risky given the troubled state of the media industry.
"My first thought was I have just co-signed a loan for $12 billion," said Bill Salganik, president of the Washington-Baltimore Newspaper Guild, and a health business reporter for The Sun newspaper in Baltimore.
Zell's bid was the same price as one by Los Angeles billionaires Eli Broad and Ron Burkle, but it had been in the works longer. Tribune shares rose 2.18 percent to $32.81.
SHAREHOLDERS MUST VOTE
The board can consider other proposals until shareholders vote on the deal. Breaking it would cost Tribune $25 million, a low fee that leaves the door open for a riposte from Broad and Burkle. Their representatives were not available for comment.
Tribune started reviewing its options after the Chandler Trusts, its largest shareholder, pressed the company to boost its flagging share price.
The Zell offer was lower than what most analysts initially thought Tribune could fetch, mostly because of the decline in newspaper stock value.
"Times are what they are. It's like selling your house. Last week it was worth 'X' -- this week it's not," said Benchmark Co. analyst Ed Atorino.
The price is about 6.5 times Tribune's forecast 2007 earnings before interest, taxes, depreciation and amortization, according to Reuters Estimates. Gannett Co. Inc., the largest U.S. publisher, is at nearly six times EBITDA.
The Chandlers, which own about 15 percent of the Chicago-based company, support the deal, as does Ariel Capital Management, Tribune's fourth-largest shareholder with 6 percent.
What remains unclear is Zell's motivation in investing in a struggling -- some say dying -- industry.
The Chicago billionaire is known as "the grave dancer" after snapping up property when the U.S. commercial real estate market was on its knees from rampant foreclosures and a lending drought.
He has refused requests for an interview, but has said his interest is in Tribune's economics, not its journalism.
TWO-STAGE DEAL
Under the deal, Tribune would be privately held with an employee stock ownership plan holding all outstanding common stock, and Zell with a subordinated note and a warrant entitling him to buy 40 percent of Tribune's common stock.
While employee stock option plans can be popular, they also can backfire. Employees at imploded companies such as Enron and WorldCom discovered that the money they had invested in those companies became worthless practically overnight.
Tribune expects the deal to close in the fourth quarter. The company has about $5 billion in debt on its balance sheet, according to its annual report filed on February 26.
Chief Executive Dennis FitzSimons said the company has no plans to sell other assets after the Cubs and the SportsNet stake. "Certainly we do have some real estate assets that could at some point be translated into cash, but nothing specific right now," he told Reuters.
The sale of the Cubs, which analysts have said could attract bids topping $700 million, is subject to the approval of Major League Baseball.
FitzSimons added that job cuts, if any, would come through attrition as much as possible.
Zell would become chairman, Tribune said, and FitzSimons would remain CEO and president.
(Additional reporting by Yinka Adegoke, Ilaina Jonas and Tiffany Wu in New York and Jessica Hall in Philadelphia)
Reuters/Nielsen
