Bloomberg News

Tribune Shares Rise on Reports of $8 Billion Zell Bid

March 26, 2007

Shares of Tribune Co., owner of the Los Angeles Times and Chicago Cubs, rose after the Los Angeles Times reported the company may accept an $8 billion takeover offer from real estate billionaire Sam Zell.

The shares gained 1.9 percent after the newspaper said Zell is offering $33 a share to acquire the Chicago-based media company, citing a person with knowledge of the negotiations.

A sale to Zell would salvage a six-month auction marked by sagging interest from buyers after Tribune's advertising sales deteriorated. The company, the second-largest U.S. newspaper owner, said it would consider a sale or restructuring in September, three months after its biggest (TRB:US) shareholder, the Chandler family, demanded action to boost the stock price.

``Tribune is limping to a finish here in what has been a tough process,'' said Steven Barlow, an analyst at Prudential Equity Group who has an ``underweight'' rating on the stock and doesn't own any shares. ``When the Chandlers began their campaign last summer, I, like most on Wall Street, valued Tribune at about $42 a share. Now look where they might end up.''

Tribune said this month that newspaper advertising fell 5.1 percent in February to $233 million, led by a 13 percent drop in classifieds.

Zell declined to comment through his spokeswoman Terry Holt. Tribune spokesman Gary Weitman declined to comment.

Shares of Chicago-based Tribune rose 59 cents to $31.12 at 4:03 p.m. in New York Stock Exchange composite trading. The shares have fallen 8.4 percent since the company announced its auction on Sept. 22.


Zell said this month he would not sell any of Tribune's 23 television stations or 11 newspapers, which include the Chicago Tribune and stakes in the Food Network and CareerBuilder Inc., a Web site that lists job openings and resumes of job-seekers.

``My intention is not to break it up,'' Zell, 65, said in a March 12 interview. ``My interest in Tribune Co. reflects my own assessment of the value of its assets.''

Zell was a late entry in Tribune's auction. His interest in Tribune emerged in February just days before the Chicago native sold Equity Office Properties Trust, his hometown-based real estate investment trust, to Blackstone Group LP for $39 billion.

The Zell proposal would create an employee stock ownership plan to help finance billions of dollars of debt for the acquisition. The structure would shield the company from certain tax obligations. Zell altered the mix of debt and equity in his plan amid concern employees would take on too much risk.

The offer is an alternative to Tribune's so-called ``self- help'' plan to spin off its television assets and pay a one-time shareholder dividend funded with debt.

Industry Slump

Tribune also received offers from California billionaires Eli Broad and Ron Burkle and from the Chandlers, who would have broken it up. Broad and Burkle wrote to the board during the weekend to complain about favorable treatment the company offered to Zell, the Los Angeles Times reported.

The perceived risk of owning Tribune's bonds rose to the highest in almost five months as credit-default swap investors increased bets that the company will be loaded up with debt in a Zell buyout.

Credit-default swaps based on $10 million of the company's bonds jumped $35,000 to $194,000, according to prices compiled by CMA Datavision in London. An increase in the contracts, used to speculate on the company's ability to repay its debt, indicates deterioration in the perception of credit quality.

Tribune has about $9 billion in total liabilities, including $4 billion in long-term debt, according to the company's filings.

Ad Slump

Tribune is battling an industry advertising slump, fed by the U.S. real estate slowdown and competition for classified ads from Internet sites such as and Yahoo Inc.'s

A sale would resolve a split on Tribune's board over the direction of the company under Chief Executive Officer Dennis FitzSimons. Tribune, which bought Times Mirror Co. for $7.5 billion from the Chandlers in 2000, pursued cross-ownership of TV stations and newspapers in the biggest U.S. markets, including Los Angeles, New York and Chicago.

``It does allow management to extract itself from operating under the pressure of a public company,'' John Janedis, an analyst at Wachovia Capital Markets in New York, said today in a report to clients. He rates the stock ``market perform.'' Janedis said he had been anticipating an offer closer to $35.

The Chandler trusts, owner of 20 percent of Tribune's stock, in June demanded a sale or breakup of the company after a 33 percent decline in the stock price over two years.

FitzSimons in September agreed to explore a sale or breakup of the company and in November, after tepid interest from potential buyers, delayed a decision until the first quarter.

The Chandler holdings are through trusts run in part by Jeffrey Chandler, the nephew of Otis Chandler, the former Los Angeles Times publisher, who died in February 2006. Jeffrey Chandler is also the great-great-grandson of Harrison Gray Otis, a Civil War general who bought a stake in the newspaper in 1882, a year after it started publishing.

To contact the reporter on this story: Leon Lazaroff in New York at

To contact the editor responsible for this story: Emma Moody at

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