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Faith in Tribune deal may be fading

The Baltimore Sun

Confidence appears to be ebbing on Wall Street in Tribune Co.'s ability to pull off a complex, $8.2 billion deal to take itself private in partnership with Chicago billionaire Sam Zell.

After Tribune's announcement late Wednesday that May revenues had fallen 11.1 percent - bringing the year-to-date decline to 5.6 percent - the company's stock fell 1.3 percent to close at $29.57 yesterday. That is 13 percent below the $34 price Tribune pledged to pay for its shares outstanding.

Meanwhile, the bid price for the largest tranche of Tribune's newly issued $7 billion in debt fell about a point below its price when the debt was sold in mid-May, according to Chris Donnelley, a vice president at Standard & Poor's Leveraged Commentary & Data, a service that tracks the leveraged finance market.

"This is an indicator that the market's appetite for the deal is waning," Donnelley said.

A Tribune spokesperson declined to comment for this article, and Zell was out of the country and unavailable.

Donnelley pointed out that the price of Tribune stock and debt doesn't really matter much at the moment since the second half of Tribune's deal won't likely hit the market until later this year. If results at the company, which owns the Chicago Tribune, Los Angeles Times, The Sun and other media properties, stabilize in the coming months, as many observers expect, the markets' worries could evaporate.

But other analysts said the falloff in prices reflects growing concern that Tribune's financial outlook is deteriorating and that it may be difficult to close the second half of the deal, which will involve syndicating another $4.2 billion in debt.

While Tribune has firm commitments from four large banks to fund the deal, the transaction is contingent on getting various regulatory approvals, including waivers of Federal Communications Commission rules regarding media cross-ownership.

The banks also can back away under certain conditions if Tribune results truly fall apart.

Several investors in Tribune stock noted equity investors and arbitrageurs are weighing the stock's valuation if the deal goes through versus the value if it fails. At the current price, one said, the market is betting that there's only a 60 percent chance the deal will close and that the stock will plummet if it doesn't.

A Deutsche Bank AG analyst dropped his target price on the stock yesterday, noting the probability that the deal won't close or will close at a lower price.

One wild card in the market is a block of 20 million Tribune shares California's Chandler family sold to New York investment bank Goldman Sachs in June for $634.8 million, or $31.19 a share.

Most observers assumed Goldman turned around and sold the shares. But one investor speculated that the bank or its customers may now be stuck with the shares and are trying to unload them, putting additional pressure on the price.

Michael Oneal writes for the Chicago Tribune.

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