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Will Zell Have a Change of Heart?

OK, Fools, here's the obviously unanswerable question of the day: Is Sam Zell having second thoughts about his deal to take Tribune (NYSE: TRB  ) private? If you respond with a negative, I'm inclined to follow up with a simple "why not?"

For now, it appears to be full speed ahead for the deal, which won overwhelming majority approval from Tribune shareholders on Tuesday. It also seems that the financing for the $8.2 billion buyout is at least almost irrevocably in place; that Zell, a Chicago real estate investor, is determined to get the deal done; and that the result will be an unbelievably leveraged communications entity with steadily declining fortunes.

Tribune, which owns 11 daily newspapers -- including its Chicago namesake, the Los Angeles Times, and Long Island's Newsday -- along with 23 TV stations and the Chicago Cubs, is experiencing an uninterrupted slide in its advertising revenue and circulation. (Review last quarter to see how bad the damage was.) This, of course, is a malady it shares with almost all publishers, including New York Times (NYSE: NYT  ) , Gannett (NYSE: GCI  ) , and McClatchy (NYSE: MNI  ) . But for Tribune, it comes when Zell and his cohorts are planning to take down well in excess of $10 billion in debt to finance his dubious undertaking.

On Monday, in part because of the expected continuing slide in a number of the company's properties, Standard & Poor's took the company's debt to a B + rating from BBB-, casting it smack-dab into the world of "junk." And as if that weren't enough, S&P has indicated that it'll further knock the rating down to B after the deal is completed.

Why, then, did Tribune shares close 4% higher Tuesday at $27.98? With shareholder approval for a deal at $34 a share, shares are still at a discount for anyone willing to buy now and hold on until the deal closes, which is expected in the fourth quarter. However, the discrepancy of almost 20% between the approved $34 price and the current price demonstrates the market's lack of faith, given both the growing credit crunch and tumbling newspaper conditions. Furthermore, investors haven't ruled out that Zell -- or perhaps the four money center banks that have promised to finance his bit of silliness -- may awaken any day now with a loud "Oops"!

So stay tuned, Fools. The comedy you're watching may only be at intermission. The next act may well include Sam Zell intoning a passionate "Can't you take a joke?"

For related Foolishness:

Newspaper companies have been recommended to Motley Fool Income Investor subscribers in the past. To see what companies are recommended now in this dividend-oriented newsletter, take a free 30-day trial.  

Fool contributor David Lee Smith probably wouldn't own a daily newspaper if somebody gave him one. He also doesn't own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.

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