News Corp unexpectedly drops bid for Newsday

By Kenneth Li and Robert MacMillan

NEW YORK (Reuters) - Rupert Murdoch's News Corp on Saturday dropped its $580 million bid for Tribune Co's Newsday newspaper, just days after Murdoch said a deal was imminent, leaving cable television operator Cablevision as the likely winner of the Long Island daily.

News Corp was unable to justify outbidding Cablevision's $650 million offer from an economic perspective. A News Corp spokesman said the deal was "uneconomical."

The decision leaves two known contenders for Newsday. Besides Cablevision, Mortimer Zuckerman, owner of the New York Daily News, a rival city tabloid to Murdoch's New York Post, also bid $580 million for the paper.

A Tribune spokesman declined to comment. A New York Daily News spokesman was not immediately available for comment.

News Corp's decision to walk away from Newsday is an unexpected twist in the three-way bidding war for the paper. Murdoch and Tribune Co Chief Executive Sam Zell had an agreement in principle to sell the paper to News Corp, with Tribune retaining a small stake to create a way to defer large capital gains taxes that a total sale would incur.

As recently as three days ago, Murdoch said on a conference call with investors to discuss News Corp's quarterly financial results that the deal with Zell was nearly done.

"I don't think Cablevision will prevail," Murdoch said, responding to a question about why he had not raised his bid, which he characterized as "competitively priced."

"Just be patient for a couple of days ... We're certainly not in the business of getting into an auction here," he said, adding that Newsday would add about $100 million in annual cash flow to News Corp.