Shareholders Approved The Deal, But What Will Tribune Really Fetch? (TRB, GCI, NYT)

August 21, 2007 by Douglas A. McIntyre

Shares of Tribune Corp. (NYSE:TRB) are trading up higher by about 3% today after shareholders approved the transaction with Same Zell.  That was not really a question.  If you were in a troubled industry that is going to face a steady secular onslaught ahead and may not be able to keep your stock above $30.00, of course the $34.00 transaction would be approved.  Sam Zell first gave the formal terms on April 2, 2007 at the height of the private equity boom.

Here is the first problem: Zell was getting the most influential voice in the company with what was going to be $315 million investment.  Tribune’s total equity deal would value the stock at nearly $4 Billion.  He got the company to approve the Employee Stock Option Plan to hold the outstanding stock and Zell holding a subordinated note and a warrant giving him the right to buy 40% of the stock.  He also gets the chairman seat.  Employees will finance a huge portion, but they all have to know who they will ultimately be answering to.

The real problem is that a cash tender for 126 million shares at $34.00 per share was to be funded with incremental borrowings and a $250 million investment from Sam Zell.  In a credit-tight environment it is hard to imagine that there would not be financing concerns. It will be able to sell off assets to pay down the debt, and it seems no one believes that Zell won’t try to renegotiate terms.  Wouldn’t you? 

Our prediction: A new offer would seem to still be fair around $31.00 on the low-end and the need to pay above $32.50 just doesn’t seem merited if the credit markets are going to actually make you prove you have real worth.  We noted some risks to the merger last week and before.

Incidentally, Options out to January 2008 seem to give an indicated price range of $31.50 to $32.40.  That is a highly subjective number, but that’s what the tea leaves are signaling today after the 3% gain in the stock.  The future of newspapers and broadcast stations still has a value, but it is a decreasing value and far lower than just a few years ago.

Gannett (NYSE:GCI) shares are down over 15% since early April.  New York Times (NYSE:NYT) shares are off less than 10% from early April,  but those shares are down more than 15% since the June highs.  Neither is a fair comparison since they don’t have as broad of assets, but a company reliant upon newspaper sales is going to be compared to other newspaper companies.

Jon C. Ogg
August 21, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers