Cablevision and Tribune reach deal for Newsday

By Yinka Adegoke and Robert MacMillan

NEW YORK (Reuters) - Cablevision Systems Corp has sealed a $650 million deal to buy the Long Island daily newspaper Newsday from Tribune Co, but analysts doubt the cable company can achieve cost savings to justify its investment.

Cablevision said on Monday the deal returns the newspaper to Long Island, New York, ownership after 40 years, and said it sees opportunities for cross-marketing and advertising with its cable operations in the same area.

But shareholders of Cablevision, run by the Dolan family, have questioned the wisdom of investing in the flagging U.S. newspaper industry, saying they preferred the company use its cash to issue a rich dividend or buy back shares.

"I don't think there's a logical extension from their current set of assets," said Miller Tabak analyst David Joyce.

Cablevision shares were down 2.3 percent to $24.39 in noon trading on the New York Stock Exchange.

The agreement was expected after News Corp said on Saturday it withdrew its $580 million bid for Newsday because it could not justify outbidding Cablevision from an economic perspective. New York Daily News owner Mortimer Zuckerman had also bid $580 million for the paper.

A Daily News spokesman was not immediately available for comment.

Cablevision is buying 97 percent of Newsday Media Group. The deal values Newsday at $632 million, with Tribune Co also receiving $18 million at closing as prepaid rent under certain leases of property used in the business.

That would be about seven times the paper's cash flow of $90 million in 2007, a figure mentioned by several sources familiar with Tribune's operations to Reuters in recent weeks.

That is at the high end of a range of 6.5 times to 7 times cash flow, which is frequently cited by analysts and media bankers as a typical valuation for a newspaper.

"It's another case of wondering whether Cablevision is allocating capital appropriately and trying to increase shareholder value," said Joyce.

The Newsday deal comes just five days after Cablevision announced it would buy Robert Redford's Sundance Channel in a $496 million stock and cash transaction. That deal was welcomed by Wall Street as Cablevision already owns other cable movie networks.

Cablevision has more than three million cable subscribers in the New York area. It owns cable TV networks like AMC and IFC, live venues like Radio City Music Hall and Madison Square Garden, and sports teams New York Knicks basketball team and New York Rangers hockey team.

The company is looking beyond cable TV to generate new revenues as its core business matures and faces stiffer competition from phone and satellite companies.

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