On Eve of Vote: Will Tribune Deal Fall Apart?

By: E&P Staff Tribune Company shareholders will meet on Tuesday in Chicago to approve Sam Zell's $8.2 billion plan to take the company private. But The New York Times asks, in a Monday article, what it calls "an uncomfortable question" that is "sure to be on many of their minds: Will this deal fall apart?

"The people involved say no, but the market seems to have its doubts."

An excerpt from the article, by Richard Perez-Pena, which is at www.nytimes.com, follows.
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A lot has changed since April 2, when Tribune and Sam Zell, the real estate billionaire, announced the complex takeover. What looked then like a moderate slump in stock prices in the newspaper industry has turned into something worse, with Tribune suffering more than most, and the credit markets the company will rely on to shoulder its debt having gone from easy to tight.

The deal promised $34 a share for a stock that had been selling around $30. In May, Tribune bought back half its outstanding shares, with plans to buy the other half in the fourth quarter.

But since then, the trading price has sunk, at one point last Tuesday dipping below $25 ? the lowest, adjusted for splits, in nine years. In deal-making circles, a small discount for uncertainty until a transaction closes is standard. But in this kind of situation, with Friday?s closing share price of $25.67, it?s another matter, a discount of nearly 25 percent.

?A lot of people are betting it won?t get done, at least not at that price,? said Dave Novosel, senior analyst at the market research firm Gimme Credit. ?From the beginning, it was dicey whether cash flow going forward was good enough to cover the debt, and Tribune has been struggling since then ? declining revenue, weaker margins.?...

Tribune has said it plans to sell the Cubs and some other assets to help pay for the deal, and if the debt repayment becomes too much of a burden, it could be forced to sell more.

?Whatever happens next, they?re going to be highly leveraged, with revenues declining in a credit market that?s spooked,? said Ken Doctor, senior news media analyst at the research firm Outsell. ?And the more you sell assets like the Cubs or TV stations, the more you?re left relying on the part of the business ? newspapers ? that?s in the most trouble.?