Tribune: Deal or No Deal?

Ignoring clouds on the horizon, Tribune Co.'s shareholders have bestowed their overwhelming approval upon an $8.2 billion buyout deal to take the company private.

In a meeting at the media conglomerate's Chicago headquarters, 97 percent of shareholders cast votes in favor of the buyout, led by real-estate billionaire Sam Zell.

The deal was already partially completed, with Tribune buying back half its shares earlier this year for $34 a piece. But recent declines in advertising revenues had raised significant doubts about whether it would be completed under the terms set forth in April.

Today's vote was the first of three major hurdles still facing Tribune. The others are obtaining approval from the Federal Communications Commission and undergoing an independent assessment of its solvency—the latter made necessary by the $10 billion-plus in debt the company will shoulder to reclaim all its stock.

Falling advertising revenues at the Los Angeles Times and other Tribune-owned papers have depressed the stock's share price and raised serious doubts about whether Tribune will be able to handle that debt load.

Tribune stock was selling at roughly $30 a share in early April, when it was first announced that the company would go private, with Zell putting up $315 million to support the deal and investors receiving $34 per share.

But that was before a dismal first-half earnings report provoked the market's skepticism. Tribune's ad revenues for its print and online operations declined 11.2 percent in the first half—a big drop even by the standards of the newspaper industry, where revenues are down more or less across the board.

As a result, the company's share price has fallen as investors wondered whether Zell might try to renegotiate and whether Tribune will survive an independent assessment of its solvency, a precondition to closing the deal. With more than $10 billion in debt, the new Tribune will need projected EBITDA of nearly $1 billion to pass that evaluation.

Throughout the oscillations in Tribune's price, the company and Zell have continued to insist that the deal will go forward under its original terms.

Shares of Tribune were up 3.6 percent in late morning trading, at $28.

Jeff Bercovici

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