Thanks to a regulatory nod from Washington on Friday, Tribune Co. soon should complete its transformation from a public company into one owned by employees and run by a billionaire investor with no newspaper experience but a maverick's knack for exploiting overlooked opportunities.
The $8.2-billion buyout led by Chicago financier Sam Zell is expected to be completed as soon as two weeks from now. When the deal closes, Tribune will take on $4.2 billion in fresh loans from skittish bankers -- bringing its total debt to about $13 billion -- and Zell will take over as chairman.
The Chicago-based company, which owns the Los Angeles Times, the Chicago Tribune, KTLA-TV Channel 5, the Chicago Cubs baseball team and a coast-to-coast collection of newspapers and TV stations, has endured a severe advertising downturn and profound changes in the media landscape. Now, the privatization deal Tribune is undertaking requires a level of borrowing that will make it one of the most debt-challenged companies in the industry's history.
Zell, 66, has offered few specifics on his plans. He has said he would pare down debt by selling the Cubs -- a luckless but popular team that could fetch as much as $1 billion -- but otherwise would keep the business largely intact. Some observers are expecting a shake-up of top management, but Zell has been silent on that as well.
Moody's Investors Service on Thursday downgraded Tribune's bonds a notch deeper into "junk" territory, saying the company's ratio of cash flow to debt service will range from 1.0 to 1.2 through 2009. In other words, given the persistent decline of advertising revenue, Tribune over the next two years may have barely enough money to make its interest payments. The credit rating firm said it would drop the company another level when the deal closes to reflect the new loans.
"Tribune's ability to service debt is clearly going to be a close call going forward," independent newspaper analyst John Morton said Friday, adding, "I believe they can do it."
As expected, the Federal Communications Commission formally approved the deal Friday, voting 3 to 2 -- Republicans over Democrats -- to give Tribune waivers of at least two years from rules prohibiting a company from owning a newspaper and a broadcast station in the same market. Tribune owns newspapers and TV stations in Los Angeles, New York, Chicago, South Florida and Hartford, Conn.
