Tribune Shareholders Overwhelmingly Approve Zell Buyout; More to Come

Shareholders of Tribune Co., the second largest U.S. newspaper publisher, overwhelmingly approved Tuesday a complex buyout deal worth $8.2 billion led by real estate mogul Sam Zell which values Tribune at $34 per share -- more than 20% higher than TRB's current $28/share. Such a wide spread is not common in pending buyouts, but the deal is far from definite. Lehman Brothers analyst Craig Huber said in an Aug. 14 note the odds of the deal going through "were no more than 50-50," because to finance the deal, Tribune will need another $4.2 billion, bringing its total debt above $14 billion. Tribune has said that it believes that the banks financing the deal, J.P Morgan, Merrill Lynch, Citigroup, and Bank of America, are fully committed, but this may change as banks continue to recoil from credit-risk. The deal also hinges on FCC approval, which requires them allowing prospective buyers to own TV stations and newspapers in the same market. This could push the deal off until to next year. If such a time gap were to occur, Tribune's profitability is likely to decrease as time goes on, raising concerns that Zell's interest may wane. Zell was not at the shareholders' meeting, but sources close to him report his interest has not changed. If the deal were to fall through, Standard and Poor's and Fitch have commented that Tribune's assets would fetch billions less than its current debt in a distress sale. Tribune's corporate debt rating was cut yesterday by S&P to B+, which said that it will cut the rating again if the deal goes through. Shares of Tribune gained $0.96 (3.6%) to $27.98.

Sources: Press release, Bloomberg, MarketWatch I, II
Commentary: Tribune Company: Low Risk, High Reward • Tribune Deal Means Zell Wins and Workers Lose
Stocks/ETFs to watch: TRB, JPM, MER, C, BAC. Competitors: NYT, GCI, WPO
Earnings call transcript: Tribune Q4 2006

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