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Tribune evaluating offers for Newsday

Analysts say price may not be the only factor in a deal

This story was reported by Mark Harrington, James T. Madore and Thomas Maier | It was written by Harrington.

May 6, 2008

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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 rupturing 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 Tribune selling Newsday's headquarters and other real estate. However, the source disagreed with a report last week that Cablevision's 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 Mortimer Zuckerman. Spokesmen for Tribune, News Corp., Zuckerman and Cablevision declined to 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, a nonprofit group that researches employee stock ownership plans. "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 Cablevision 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 said.

"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."

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 News 12, a Cablevision bid would be just as problematic as a News Corp. deal," wrote Sanford C. Bernstein & Co. analyst Craig Moffett. He also questioned the impact of a Newsday purchase on Cablevision's free cash flow.

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

For Tribune, there are other considerations. Any deal must be reviewed by an independent "watchdog" trustee appointed by the Tribune's employee stock ownership plan, created when Zell took the company private with employee funding. The whole process for selling Newsday could still take several more weeks, the experts said. "They have to look at all the offers, and they have to act in the best interest of the [ESOP] 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 finance 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 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," Rosen said.