As Tribune Co. shareholders prepare to convene in Chicago on Tuesday 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% below the $34 offering price.
The main reason for the investor skepticism is the heavy debt load that Chicago-based Tribune would be carrying after it went private, plus the continuing decline in advertising revenue and cash flow from the company's TV stations and newspapers, including the Los Angeles Times.
Both Zell and Tribune management have insisted all along that the deal will close on schedule by year-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 from the time a buyout is announced and when it is completed.
Somebody willing to gamble that the deal will close on time could pocket a hefty return, and a few hedge funds apparently have been willing to take that bet. As of June 30, according to Securities and Exchange Commission records, Stark Offshore Management, Perry Corp. and Renaissance Technologies had bought 7.3 million, 4 million and 1.4 million shares, respectively.
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 like Zell.
Under the so-called short-swing trade rule, any insider who buys and sells shares in his or her company within six months of each other must disgorge to the company any profits made on the trades. The trader might still have to pay taxes on the gain. In certain circumstances the trading can be authorized in advance by the company's board and a shareholder vote, but it's unclear whether those waivers would apply in this case.
