Sun's parent agrees to sell for $8.2 billion

Real estate titan Sam Zell taking media company private

cuts loom

April 03, 2007|By Hanah Cho and Nick Madigan | Hanah Cho and Nick Madigan,SUN REPORTERS

The proposed $8.2 billion sale of The Sun's parent to a Chicago real estate magnate takes the company private, positions it for long-term growth and will allow it to keep its newspaper and broadcast properties intact, Tribune Co. executives said yesterday.

But the tremendous debt needed to finance the deal - as well as slipping revenue this year - could mean cuts in newsrooms and elsewhere at Tribune's media subsidiaries, company executives, employees and analysts said.

Tribune announced yesterday that it had agreed to be sold to billionaire Sam Zell for $34 a share in a deal that involves borrowing $8.4 billion in addition to the company's existing debt. The decision came after a six-month auction in which the company received tepid offers. Tribune board members considered two competing bids over the weekend.

Zell has indicated that he plans to keep the company in one piece. Tribune executives had resisted splitting up the conglomerate because of onerous tax implications. The Chicago-based company owns 11 newspapers, including The Sun and the Los Angeles Times, as well as 23 television stations and other properties.

Tribune said, however, that it would sell the Chicago Cubs and the company's 25 percent interest in Comcast SportsNet Chicago after the 2007 baseball season. Proceeds will be used to pay down debt.

Under the transaction, Zell would invest $315 million and take control of the company in partnership with an employee stock ownership plan. The idea of owning a stake in the company is attractive but also worrisome for many employees, who have seen the value of the company decrease over time.

"As a long-term investor, I look forward to partnering with the management and employees as we build on the great heritage of Tribune Co.," Zell said in a statement.

Timothy Ryan, who took over as publisher of The Sun less than two weeks ago, said staff cutbacks would be required in the near future. In an interview in his office after a staff meeting, Ryan said he did not know how many people might have to go, but would in a month or two, after a review. He could not say whether the reductions would be made through attrition, buyouts or layoffs.

Ryan said the decision to cut staff at The Sun was prompted primarily by a decline in advertising revenue in the first three months of the year and was not the result of yesterday's sale announcement.

Tribune reported disappointing revenue in February as its publishing division continued to struggle. Advertising income decreased 5.1 percent to $233 million, while circulation revenues slid 7 percent on single-copy declines and discounts for some home delivery.

The sale of Tribune comes as the traditional media industry, including television and radio, is beset by a steady decline in audience and advertising revenue caused by the explosion of information available on the Internet and cable. The Newspaper Association of America reported that print advertising fell 1.7 percent last year, to $46.6 billion.

The Baltimore Sun Co., which has 1,550 employees, owns The Sun and several community newspapers in the region through its Patuxent Publishing Co. and Homestead Publishing Co. divisions.

The sale of Tribune would mark the most recent transformation for The Sun, which was first published May 17, 1837. As chairman of a privately held Tribune, Zell would become The Sun's fourth owner.

The motorcycle-riding Zell gained his business reputation through real estate successes, the foundation of a fortune estimated recently by Forbes magazine at $5 billion. He came to be known as "the Grave Dancer" for his penchant for spotting and pursuing opportunities that others disregarded.

In February, Zell sold his Equity Office Properties Trust to the Blackstone Group for $39 billion.

Donald C. Fry, president and chief executive officer of the Greater Baltimore Committee, said business leaders would watch closely Tribune's proposed sale and its impact on The Sun.

"I think you always, whenever there is new ownership involved, have to be concerned with whether or not there will be any changes in the composition of management or operations of the newspaper," Fry said.

Investors in various cities, including Baltimore and Los Angeles, remain interested in buying Tribune's newspapers. Craig Huber, a Lehman Brothers analyst, estimated that it would cost $517 million to buy The Baltimore Sun Co.

"Our strategy has always been to see who acquires the entire company and try to work with that person to negotiate a sale of The Sun, and that's what we still intend to do," said Theodore G. Venetoulis, a publisher and former Baltimore County executive who has been leading a local group interested in buying The Sun.

Some analysts and observers say that despite Zell's intentions to keep the company in one piece, he might be forced to consider the sale of individual properties to pay down debt.

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