Wednesday, March 28, 2007

tribune decision imminent

chuck from ivy chat has been the one-stop source for the news of tribune company's troubles from the start, and there's more to report today.

tribune will apparently decide to accept the offer of chicago real estate magnate sam zell.

Tribune Co., owner of the Los Angeles Times and Chicago Cubs, will probably accept real estate billionaire Sam Zell's $8 billion takeover offer by the end of the week, according to people familiar with the matter.

An agreement is likely by Tribune's self-imposed deadline of March 31, said the people, who declined to be named because no decision has been made. Zell's offer of $33 a share is 6.8 percent above yesterday's close.

Zell said this month that he plans to keep the company's television stations and newspapers intact, including 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.

such may be zell's intention, but markets may insist otherwise.

The perceived risk of owning Tribune's bonds yesterday rose to the highest in almost five months as credit-default swap investors increased bets that the company will also 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.

with tribune's bonds suffering, the market is making the servicing the debt from the buyout much more difficult -- a point which may force zell to liquidate some of the assets of tribune to reduce the overall debt and assuage bond investors. candidate #1? you guessed it.

Zell has indicated he has no plans to break apart Tribune, and there have been no indications about whether the Chandler Trust, which owns a 20 percent equity stake in the company, and the McCormick Foundation, which owns a 13 percent equity stake, will participate with Zell, Barclays Capital analyst Hale Holden said in a report on Tuesday.

However, "assuming no asset sales and both the Chandler Trust and McCormick Foundation sell their stake, we estimate pro forma leverage slightly greater than 10 times, which we do not view as a realistic capital structure for a structurally declining business," Holden said.

A more realistic scenario would be a sale of the Cubs and Tribune's 31 percent stake in the Food Network, in addition to rolling over the McCormick Trust's equity stake and potentially their proceeds from the dividend, estimated at $548 million, into the LBO financing, the bank said. A sale of the cubs is valued between $450 million and $500 million and the company's stake in the Food Network is valued around $700 million to $750 million.

This would lead to pro forma leverage of 7.8 times to 8 times, which would likely push swap spreads wider to between 275 and 300 basis points.

"Even leveraged at 8 times, we think Tribune could trade relatively poorly given uncertainty regarding the long-term outlook for major market newspapers, recent weakness in rating performance of Tribunes' CW (television network) affiliates, and multiple contractions at public peers," Barclays' Holden said.

by saturday, the chicago national league ballclub may be quite a lot closer to the endgame that could finally decouple it from tribco or any other extraneous cash flow siphon, which have stunted the growth of payroll (yes, even now) even as revenues have disproportionately skyrocketed.

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