Tribune Chairman FitzSimons: Can't Tell How FCC Cross-Ownership Proposal Will Influence Zell Deal

By: Mark Fitzgerald In a memo to Tribune Co. employees Tuesday afternoon, Chairman and CEO Dennis FitzSimons said Federal Communications (FCC) Chairman Kevin Martin's proposal to ease cross-ownership rules in only America's biggest markets is too little for the company -- and may present "challenges" as the Chicago media giant attempts to close its going-private deal led by real estate mogul Sam Zell.

In May, Tribune petitioned the FCC to transfer the licenses of the television and radio stations in four markets where it also publishes newspapers.

"The Chairman previously said that he expected the commission to act on our application within 180 days -- we're now beyond that timeframe," FitzSimons wrote. "The content of today's proposed rule change and Chairman Martin's aggressive timetable for voting on it are likely to face challenges in the weeks ahead and there will be a great deal of speculation in the media about its impact. In addition, the proposal as currently written is likely to need further clarification. Until that clarification, we are declining to comment publicly about the proposal."

Tribune needs the waivers soon, or risks higher financing costs -- or the withdrawal of commitments by any of its four investment banks -- to swing the deal at the $34 per share offer in Zell's $8.2 billion employee stock ownership plan-based transaction.

FitzSimons said Martin's proposal to allow daily newspapers in the largest 20 Nielsen Designated Market Areas (DMAs) to own either one TV station or one radio station is "less ambitious" than the sweeping proposal that the FCC passed in 2003. "Consequently, through the public comment process now underway, we will seek an expansion of cross-ownership relief beyond that contained in Chairman Martin's proposal."

Gannett Co. Inc. late today released this statement: "Gannett agrees the newspaper/broadcast cross-ownership ban must be changed, but today?s proposed rule is far too limited and does not reflect the realities of the marketplace."

Wall Street, which pushed up the Dow Jones Industrial Index by more than 300 points Tuesday, appeared a little more confident that the Zell deal will get done. Tribune stock (TRB:NYSE) closed at $28.53, up 62 cents, or 2.22%. The stock is still trading below the $34 offer for the second part of the transaction.

The text of FitzSimons' memo is below.
*

From: Dennis FitzSimons
Sent: Tuesday, November 13, 2007 3:43 PM
Subject: FCC proposal on cross-ownership rule

Dear Fellow Employee,

As you may have heard, Federal Communications Commission Chairman Kevin Martin today proposed a revision to the newspaper/broadcast cross-ownership rule. Based on the Chairman's current timetable, the FCC could vote on whether to adopt the revised rule on December 18th.

Clearly Chairman Martin is interested in bringing the cross-ownership issue to a close, and his proposal is an attempt to do just that. But this proposal is less ambitious than the FCC's 2003 process which dramatically scaled back media ownership rules and was supported by the Court of Appeals in 2004. Consequently, through the public comment process now underway, we will seek an expansion of cross-ownership relief beyond that contained in Chairman Martin's proposal.

In connection with our going-private transaction, we petitioned the FCC on May 1st to grant our application for the transfer of our broadcasting licenses and extension of cross-ownership waivers in markets where we own both a television station and a newspaper. The Chairman previously said that he expected the commission to act on our application within 180 days-we're now beyond that timeframe.

We still hope to close our transaction by the end of this year.

The content of today's proposed rule change and Chairman Martin's aggressive timetable for voting on it are likely to face challenges in the weeks ahead and there will be a great deal of speculation in the media about its impact. In addition, the proposal as currently written is likely to need further clarification. Until that clarification, we are declining to comment publicly about the proposal.

For your information, attached is the reaction of the Newspaper Association of America to the Chairman's proposal. We will keep you informed of any new developments in what is a very fluid situation in Washington.