Tribune near plan to sell Newsday to News Corp

By Robert MacMillan and Jui Chakravorty Das

NEW YORK (Reuters) - Tribune Co has reached agreement in principle to sell Newsday to News Corp for about $580 million in what would be a joint venture, according to a source familiar with the matter.

Another person briefed on the matter said the two parties are "very close" to a deal.

Under the terms of the alliance, Tribune's Newsday would be part of a joint venture with News Corp's money-losing New York Post, allowing the two publications to combine back office operations, the person said.

News Corp would own most of the company, with Tribune keeping a very small stake. Additionally, Tribune could receive anywhere between $500 and $600 million in cash, the source said.

Details of ownership are still being ironed out and there is still a small chance the deal could fall through, the person said.

Both sources spoke on condition of anonymity because the talks are confidential.

Selling the paper based on Long Island, adjacent to New York City, would be key to Tribune Chief Executive and Chicago real estate magnate Sam Zell's plans to help slash debt at the company.

Zell took Tribune private in an $8.2 billion leveraged buyout that restructured the publisher as an employee-owned company, saddling it with more than $10 billion in debt.

The Wall Street Journal said the deal is expected to wipe out as much as $50 million in annual losses that News Corp now incurs on the Post, with the combined Newsday-Post operation earning roughly $50 million.

"MORE THAN ENOUGH"

Newspaper analyst John Morton said Newsday "makes more than enough money to cover the Post's losses." The company had a cash flow of about $80 million in 2007, according to a source with knowledge of the discussions.

"The combined operation would be profitable," Morton said. "There would be some administrative and production cost savings but the real goal would be to combine the advertising appeal and sell that jointly for advertisers that want both Long Island and New York City coverage."

Analysts said a combined operation would also place News Corp's New York Post in a much stronger position against its main tabloid rival, the New York Daily News.

The Daily News and the Post compete fiercely for readers and advertisers in New York City. In fact, Daily News owner Mortimer Zuckerman had also made a bid for Newsday, a source told Reuters earlier this month.

Pali Research analyst Richard Greenfield expressed concern about the timing of the purchase.