As Tribune Co. shareholders prepare to convene in Chicago tomorrow to vote on an $8.4 billion buyout led by investor Sam Zell, the noise in the background is Wall Street traders chirping that the deal might never get done - at least as proposed.
Amid one of the most turbulent summers in years for the stock market, Tribune shares have slid steadily and steeply. The stock closed Friday at $25.67, just a few dimes above a multiyear low and 25 percent below the $34 offering price.
The main reason for the investor skepticism is the heavy debt load that Tribune will be carrying after it goes private, plus the continuing decline in advertising revenue and cash flow from the company's TV stations and newspapers, including The Sun, the Chicago Tribune, the Los Angeles Times and Newsday.
Both Zell and Tribune management have insisted all along that the deal would close on schedule by year's end and at the announced price.
The big discount in the share value reflects a vote of no confidence by speculators known as risk arbitrageurs, who tend to take over trading in a stock between the time a buyout is announced and it is completed.
Somebody willing to gamble that the deal will close on time could pocket a hefty return, and a few hedge funds have been willing to take that bet.
The discount also has led Zell to consider buying some shares on the open market, according to people familiar with his thinking. Such a transaction might serve as a vehicle for Zell to increase his equity investment in Tribune, which might salve some of the banks' concerns about the deal's high leverage. But it would be complicated by a federal rule restricting short-term stock purchases by company insiders, including directors such as Zell.
Also uncertain is how much Tribune stock Zell would be able to buy at the current discount: Any large block trade is likely to move the price up, especially if it is identified with Zell, as that would signal to other investors his determination to complete the merger as announced.
After tomorrow's expected vote in favor of the buyout, the main obstacle is approval of the deal by the Federal Communications Commission, which must agree to transfer the licenses of Tribune's 23 TV stations and one radio station to the new company. It must also issue waivers allowing the company to own both TV stations and newspapers in five cities.
To Wall Street, the big obstacle isn't the FCC but the new company's ability to service its huge debt load on what looks to be a shrinking source of cash flow. Even after a planned sale of Tribune's Chicago Cubs baseball team, the new company is expected to carry more than $10 billion of debt.
Thomas S. Mulligan and Michael Hiltzik write for the Los Angeles Times.