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Price just one factor as Zell mulls Newsday bid

BY MARK HARRINGTON | mark.harrington@newsday.com

8:46 PM EDT, May 5, 2008

As talks continued yesterday for the sale of Newsday, owner Tribune Co. assessed three similarly structured offers to determine which best fit its own strategic plan and need for debt-bound cash, a source close to the negotiations said.

With a Cablevision Systems Corp. offer outweighing the other two on a cash basis, the dilemma appears to be whether Tribune chief executive Sam Zell could afford to risk a relationship with News Corp. owner Rupert Murdoch if he sold to the highest bidder. According to sources, News Corp. has signaled it will not raise its $580-million offer.

All three bids, the source close to the Zell-Murdoch talks said yesterday, contemplate a joint venture with Tribune to avoid heavy taxes, and none, said the source, envisions the sale of Newsday's headquarters and other real estate. However, the source disagreed with an earlier report last week that the Cablevision bid included the sale of Newsday property.

That would leave the $650-million Cablevision offer as the presumptive high bid in a field that includes matching $580-million proposals by Murdoch and Daily News owner Mort Zuckerman. Spokesmen for Tribune, News Corp., Zuckerman and Cablevision declined comment.

However, "When you look at the difference between $580 million and $650 million, it's not that simple because each deal may have different contingencies," said Corey Rosen, executive director of the National Center for Employee Ownership. "It's not the top dollar but the top value."

Rosen said these varying factors could include tax consequences for Tribune and the value of Newsday's facilities.

Cablevision's $70-million premium over the other two bids "is not something that can be ignored," the source said. Yet, because it doesn't own a newspaper, as the other bidders do, there are questions about the strategic fit between Newsday and Bethpage-based Cablevision, the source noted.

"The differences aren't insurmountable but they are real," the source said. "Zell has to weigh what this means in terms of Tribune's relations with say, News Corp., which we know he wants to do business with in the future."

The assumption that Murdoch's bid alone faces federal regulatory hurdles because he owns the New York Post and two local TV stations was challenged yesterday by an analyst who said Cablevision also could face regulatory scrutiny.

"As the primary distributor of television content on Long Island via its dominant position as a cable operator, and as the sole 'publisher' of TV news on Long Island through its ownership of News12, a Cablevision bid would be just as problematic as a News Corp. deal," wrote Sandford C. Bernstein & Co. analyst Craig Moffett. He also questioned the impact of a Newsday buyout on Cablevision's free cash flow.

Wall Street appeared to be skittish last week on a Cablevision-Newsday deal.

For Tribune, there are other considerations.

Any deal that is struck must be reviewed by an independent "watchdog" trustee appointed by the Tribune's Employee Stock Ownership Plan, created last year when Zell took the company private with employee funding. The whole process for selling Newsday could still take several more weeks to finalize, the experts said.

"They have to look at all the offers, and they have to act in the best interest of the participants," said Merri Ash, vice president of First Bankers Trust Services, an expert in ESOPs.

A key person in Newsday's fate likely will be Marilyn Marchetti, senior vice president of GreatBanc Trust Co., the independent Tribune ESOP trustee who must decide whether Zell's favorite bidder is truly in the best interests of the company. Last year, GreatBanc Trust was put in charge of acting on behalf of the Tribune employees whose retirement accounts helped financed the $8.2-billion Tribune buyout orchestrated by Zell last year. Marchetti couldn't be reached yesterday.

If approved by the Tribune board and the company's ESOP trustee, the sale could also be contested before the U.S. Department of Labor, which oversees ESOPs. "I can't think of another ESOP asset sale like this," said Rosen.

Staff writers James T. Madore and Thomas Maier contributed to this story.