Article on Tribune (TRB) merger

Bloomberg has a good summary on the current situation with Tribune.

Billionaire Sam Zell has a knack for buying low and selling high -- which is why his $8.2 billion takeover of Tribune Co. may return 35 percent to anyone who now buys the shares and 11 percent for anyone purchasing the bonds.

So you are looking at around 30% return in just under 6 months. A Lehman Brothers analyst supposedly thinks the chance of a close is only 50%, and has a price target of $5 if the deal falls.

Lehman Brothers Holdings Inc. said this week the deal has no better than a 50-50 chance of being completed as scheduled, and credit markets indicate a 57 percent probability of insolvency if it is.

I am sure the shareholders will vote for the deal and Sam Zell will be ok with the deal, but the question is with the financiers. Three big banks are supposed to raise debt and certain conditions have to be met:

For lenders to renege, adjusted earnings would have to plunge further than a 22 percent decline in the first half, Holden said.

I think sales will drop quite a bit but I really wonder if earnings will drop far enough to trigger a failure. It's definitely a risky call and if you are investing, you have to nail that call.

BTW, it's amazing how he can buy out Tribune, a company worth billions, for around $600 million in a few years. It is certainly out of favour and risky but if you had a lot of money, deals like this are what make you super-wealthy.

The shareholder vote is next Tuesday so will the stock move up if shareholders accept the deal? I'm thinking a 'yes' vote is already priced in so no point rushing.

I'll finish off with this funny comment about a big boy trade (LOL):

The risks to Tribune mean investors need to carefully weigh potential rewards before buying the stock or bonds, Simonton said. ``These are all big-boy trades.''