FCC still needs to grant ownership waiver

He was hammered by Teamsters and other union reps, but Tribune Co. CEO Dennis FitzSimons was unflappable Tuesday as he presided over the fait accompli vote by Tribune shareholders to approve the company’s $8.2 billion buyout agreement with Chicago real estate mogul Sam Zell.

A preliminary count of proxy votes on Tuesday indicated that 97% of shareholders voted in favor of the transaction, which will see them bought out at $34 a share — or a better than 20% premium over Tribune’s recent trading price.

Skepticism persists, however, about Zell’s commitment to the complex deal to take Tribune private at the price negotiated last spring given the more recent slump in the company’s stock price and sharp downturn in advertising revenue at its bedrock newspaper and TV station operations. There’s growing speculation that Zell is under pressure from bankers to back out of the deal under its current terms, something Tribune brass steadfastly deny.

The morning shareholders’ gathering at Tribune HQ in Chicago was anticlimactic given the company’s drawn-out sale process; indeed, only a few dozen shareholders attended, mostly reps for Teamsters and other unions involved with Tribune. Zell, who is skedded to become Tribune chairman when the deal closes, skipped the sesh entirely, with FitzSimons explaining that he had a “prior commitment.”

Zell later issued a statement in which he seemed to try to counter speculation that he would seek to renegotiate the deal terms.

“I believe Tribune Co. is reasserting itself as a national leader in news generation and distribution,” Zell said. “Despite the recent upheaval in the credit markets, my view of the company as an investment has not changed.”

The Zell deal will take Tribune private with a financing scheme known an Employee Stock Ownership Plan, under which Tribune employees will hold most of the equity in the company through their stock and retirement plans. Zell has committed $315 million in capital to the $8.2 billion buyout and will receive options to acquire 40% of the company down the road for another $500 million investment.

FitzSimons repeatedly stressed that financing for the two-stage Tribune stock purchase required under the Zell takeover plan is “fully committed” by leading global banks including Citigroup, JPMorgan Chase and Merrill Lynch. And he said that even with the downturn in ad revenue at the company’s flagship TV stations and newspapers, it fully expects to be in compliance with its debt convenants with those lenders.

“We can be very successful if cash flow growth levels remain in very moderate territory,” FitzSimons told shareholders. “We’re facing more competition from all (forms of) media … and we’ve got to do a better job in print media and broadcasting.” FitzSimons highlighted what he called “innovative” efforts to present advertisers with new marketing options including front-page advertising on some of its 11 newspapers. He cited strong growth potential of its interactive ventures, including those tied to its local TV outlets.

As a private company, Tribune will be better insulated from quarter-to-quarter performance pressure and will have more flexibility in transforming some of its business operations.

But the intricacies of the transition to a primarily employee-owned structure has raised jitters among rank-and-file Tribune staffers who fear they will bear the brunt of the financial pain if the company’s financial picture continues to deteriorate. Standard & Poor’s and other Wall Street ratings agencies have taken a dim view of the deal, particularly the $13 billion debt load the company is expected to carry after it closes. With the credit crunch that the broader market has experienced in recent weeks, that debt could become more costly to service over the long term.

Still, investors have bid up Tribune stock so far this week, with Tuesday’s closing price up nearly 4%, or 96¢, to $27.98 following a 5% gain on Monday. Some shareholders at Tuesday’s meeting suggested that Tribune should use some of its cash on hand to buy stock at its current price to benefit its soon-to-be employee owners when the $34-per-share transaction is completed.

If Zell does not move to change the deal terms, the last remaining hurdle to Tribune going private would be securing FCC approval for the license transfers of its 23 TV stations, which include WPIX New York, KTLA Los Angeles and WGN Chicago. Tribune is seeking an extension of existing waivers that the FCC has granted to allow the company to own newspapers and TV stations in the same markets, including L.A., where it also owns the Los Angeles Times, and New York, where it owns Newsday.

The FCC has had a longstanding rule barring cross-ownership of newspaper and TV stations in major markets, but it has also been conducting a federally mandated review of those regs for more than six years. Tribune and other media giants have lobbied fiercely for the abolition of those rules, and on Tuesday, FitzSimons told questioners at the meeting that he’s confident the deal would receive the necessary FCC approvals to close on sked by year’s end.

In response to tough questioning about employee participation in the future management of the company, FitzSimons said employees would have a representative on the board of directors from the GreatBanc Trust Inc., that is tasked with minding the employees’ equity in the company. And FitzSimons took aim at what he called a “blatant misrepresentation of the facts” by some union reps of the threat to employee pensions posed by the Zell deal. FitzSimons stressed that the company’s existing $1.8 billion employee pension fund was overfunded to the tune of $300 million and would be “safe and secure” regardless of the company’s future financial performance.

For Tribune shareholders, Tuesday’s vote brings to a close a public corporate drama that erupted in June 2006 when the company’s largest shareholder, the Chandler clan of Los Angeles (which sold its Times Mirror holdings to Tribune in 2000) issued a public rebuke of Tribune’s current management and called for the company to be broken up or sold (Daily Variety, June 15, 2006). The Chandler Trusts’ stake was bought out earlier this year as part of Tribune’s “strategic review” of options that led the board to endorse the Zell-employee ownership buyout deal.

(Dade Hayes and the Associated Press contributed to this report.)

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