Monday, October 29, 2007 0 comments ++[ CLICK TO COMMENT ]++

Doubts about Tribune Deal

Reuters has an article where some analysts are questioning whether the Tribune deal will go through.

"The banks require that guaranteed debt be less than 9 times EBITDA as of the last measurement date before closing," Newman said.

"The latest data point should bring a sigh of temporary relief to equity holders," he said. However, "we expect questions will persist about Tribune's ability to meet the 9 times covenant requirement."


Although this is a requirement that one needs to worry about, the real big threat isn't even mentioned in the article. That being, the FCC approval to continue the waiver for Tribune to own TV stations as well as newspapers in the same market. That decision is likely in mid-December and I suspect the stock will trade near its takeover price when approved (if FCC doesn't agree, the stock price may collapse and the deal needs to be re-structured (possibly have to divest some media holdings)).

Gimme Credit analyst Dave Novosel, meanwhile, said that the economics of the deal remain in question, with the buyout price of $34 per share likely too high.

"If I look at the state of the business and the free cash flow that Tribune is likely to do for the next two years, I just don't see how (Zell) makes anywhere near a respectable return on this," Novosel said.

"It's hard to image how he will have the free cash flow to make this thing work," he said.


Unlike the analysts, I don't believe that Sam Zell is concerned with the price. He is a savvy businessperson and he wouldn't have negotiated the original deal if he didn't like the price. He will also have legal problems if he were to re-negotiate the deal. In some of his comments since the deal was announced, he has been behaving as if this deal were to go through.

The real risk always has been with the bankers. If they can't raise the financing then they may want to lower the price. But I'm not sure who pays in that case. Would it be Sam Zell or Tribune?

For those following the situation, the stock is trading around 13% below takeover price right now.

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