Please ensure Javascript is enabled for purposes of website accessibility

Will Zell Have a Change of Heart?

By David Smith – Updated Nov 14, 2016 at 11:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A credit crunch and Tribune's plight could still halt Sam Zell's deal.

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.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Gannett Co., Inc. Stock Quote
Gannett Co., Inc.
GCI
The New York Times Company Stock Quote
The New York Times Company
NYT
$27.97 (-2.58%) $0.74
The McClatchy Company Stock Quote
The McClatchy Company
MNI

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.