Tribune Deal In Doubt?

Back in the days before Rupert Murdoch decided to freak out the media establishment and subject the Bancroft family to his delicate seductions, we used to write about a guy named Sam Zell, who back in April outbid Ron Burkle and Eli Broad to purchase Tribune Company. At the time, we said the Tribune's board favored "Zell's offer" as it "was seen as preferable to Broad and Burkle's because it was 'further along and could be finished more quickly.'"

Ha ha! Hilarious, right? Because ever since then, obstacles of the regulatory variety have sprung up in the way of the deal and the Tribune has had to make any number of cost-saving adjustments, including staff reductions and, as reported on today, a page-size downsize similar to the skinnification measures recently taken by the New York Times. But now, at last, the shareholders are set to meet tomorrow to finally vote on the Zell takeover. Light at the end of the tunnel?

Uhm...maybe not. As we've noted before, despite having an awesomely punnable name, Sam Zell has heretofore lacked a key trait that Rupert Murdoch brought to the table in his dealings with Dow Jones--namely, the power to send the company's share value in an upward direction. Last week, Tribune stock hit the skids, falling to a nine-year low last Tuesday, and closing Friday at an anemic price of $25.67. Zell originally bought in at $34 a share.

Could the lack of momentum scuttle the deal? According to the New York Times, "The people involved say no, but the market seems to have its doubts."

Bankers and analysts say they see three possibilities for Tribune, each with potentially serious drawbacks.

Proceeding with the takeover as planned, at $34 a share, would leave the company with very heavy debt -- more than it can readily carry, many of the analysts say.

If the deal dissolves as its stands now, half-realized, Tribune would still be deep in debt, though somewhat less so. Furthermore, it would not reap the significant tax benefits it was counting on to help make the package work.

The third option would be to renegotiate the second phase of the stock purchase at a lower price, which would ease the company's debt burden. But in the current credit market, that might mean paying much higher interest, and it could invite lawsuits by irate shareholders.

Even still, most expect the shareholders to vote yes, because, as the Times notes: "there is no better choice before them." And there's nothing like grim resignation to spice up a shareholders' meeting!

Related:
How Solid Is the Deal for Tribune Company? [New York Times]
Not-So-Broad Shoulders: 'Chicago Tribune' To Trim Page Size in January [Editor and Publisher]

Previously, on Eat The Press:
April Zell's Day! Tribune Will Sell To Zell!
Zell In a Handbasket! Tribune to Cut Staff by 3%
Obstacles Remain in the Way of Tribune Deal