Zell wins bid for Tribune, Cubs on block

By Robert MacMillan

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.