• by Erik Sass , April 3, 2007

It's all over. On Monday morning the Tribune Company announced it accepted a proposal from Chicago real estate mogul Sam Zell to take the company private, with a bid of $34 a share and a promise to invest $315 million of his own money. The majority of the company's shares will be owned by its employees in an Employee Stock Ownership Plan (ESOP), with Zell, the new chairman of the board, getting the remaining 40%.

Importantly, the $8.2 billion deal will buy out the 20% stake in Tribune owned by the Chandler family, who drove the Tribune board to initiate the auction in October 2006 in a bid to raise share prices as they divested themselves of theirs.

Dennis FitzSimons, Tribune's current chairman and president, said taking the company private will relieve it from shareholder pressure to produce short-term gains and allow more strategic planning: "As a private company, Tribune will have greater flexibility to transform our publishing-interactive and broadcasting businesses with an eye toward long-term growth."

The deal contains a few surprises, including the planned sale of the Chicago Cubs, the Major League Baseball team purchased by Tribune in 1981 for $20.5 million. Andrew Zimbalist, a professor of economics at Smith College and an expert on the financial aspects of professional sports, speculated that the team could fetch a sum ranging from $500-$650 million, depending on a number of variables including contract terms, its deals with Comcast SportsNet, and the status of their Wrigley Field venue.

Dissatisfied shareholders, led by the Chandlers, had called for the breakup and piecemeal sale of the company to raise share prices, and the Tribune board itself had mentioned the possibility of spinning off the company's 23 TV stations as part of an alternative "self-help" recapitalization plan--but overall the board expressed a preference for keeping the company's properties intact. These also include the Los Angeles Times, Newsday of Long Island, and a minority stake in the Food Network.

Reports began circulating late Friday that the Tribune board was encouraging Zell to submit a bid matching a rival offer of $34 a share from two Los Angeles billionaires, Eli Broad and Ron Burkle, tendered on Thursday. Broad and Burkle's bid had topped Zell's previous offer of $33 a share and incorporated many elements of his proposal for the company, including the creation of an ESOP, as well as a promise to invest $500 million of their own money.

The end of the tortuous six-month auction is probably a relief for Tribune shareholders and management, but according to Ken Doctor, a newspaper industry analyst with Outsell, Inc., the big picture is gloomy: "The first thing you notice is there were no newspaper companies or media companies bidding on the Tribune Company at the end. The only bidders were from outside the industry--after the shareholders and the market said, 'I don't think so.'"

Broad, like Zell, made his fortune in real estate and finance, while Burkle earned his billions building a chain of supermarkets. In light of industry trends, Doctor was skeptical that Zell could turn the company's fortunes around in the short term: "Sam Zell is known as an astute investor who really knows how to buy distressed properties. But what may be missing in all this is that Tribune is not particularly a distressed company--it's a company in a distressed industry. And the advertising and circulation decline is only deepening."

Speaking of the newspaper industry in general, Doctor was guardedly optimistic about long-term prospects: "There's significant long-term value in those newspaper and Internet brands. But companies are going to have to absorb lower margins for the next 3-5 years. In the short term, this is not something that [Zell] can make a quick buck on."