Today, Tribune Company shareholders met in Chicago and approved the $8.2 billion takeover bid led by Sam Zell. They're getting a sweet premium--about 20% over the current stock price Zell is offering, so shareholder approval was never really a big challenge to the deal.
But even with shareholder approval, Zell still has plenty of problems on his hands. First, the increasingly grim state of print advertising. Since Zell made his sweet offer, the Tribune Company's assets have reported some disappointing results: a sad drop in ad revenues at the Los Angeles Times. And then second, there's the huge debt load Zell is poised to take on--an estimated $10 billion dollars in total--a weight made worse by the credit crunch as well as that first factor; the declining ads that are diminishing Tribune's cash flow.
Tribune has already borrowed $7 billion to finance the share buyback (it has to repay $1.5 billion in two years) and then it'll borrow an additional $4.2 billion to buy all the remaining shares. So all in, that's about $11 billion dollars, and once the company sells off the Chicago Cubs, for about $1 billion that will put the total debt at $10 billion.
Zell and the Tribune Co. insist the deal will go forward as originally planned. Wall Street concerns seem to have been assuaged a bit--the spread between the market price of shares and the value of the deal has closed a bit. But the terms of the deal may still change. To lower the debt load Zell may try to buy some shares himself, taking advantage of the low stock price. It's unclear if he's legally permitted to do so. Or, will he try to negotiate a lower price? The higher the stock price goes, the less likely it is Zell will try to renegotiate.
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