Remember those blissful days back in April, before anyone knew about Rupert Murdoch's evil plans to take over the Wall Street Journal and the biggest media acquisition story going was the one about Chicago real estate magnate Sam Zell's plans to buy Tribune? Yeah, we thought we were done with that one too. Unfortunately, not yet! The Times, Journal and Los Angeles Times all take a look at the deal, scheduled to be completed tomorrow, and agree: The damn thing might not happen. Why?

Well, it's got something to do with the complexities of the deal's structure as relates to the recent turmoil in the stock market, none of which we fully understand. These people probably do:

"The deal," says the Journal, "has faced doubters since it was finalized April 1 after a long, tortuous auction that brought forward little interest in a purchase of the newspaper and TV empire. Chicago real-estate magnate Sam Zell ended up striking a deal in which he makes a very limited financial commitment to support a buyout; he has agreed to invest $315 million. The centerpiece of the deal is an employee share-ownership plan that is taking on debt and can utilize tax breaks afforded ESOPs to make repayment easier."

But, the Times tells us, "A lot has changed since April 2, when Tribune and Sam Zell, the real estate billionaire, announced the complex takeover. What looked then like a moderate slump in stock prices in the newspaper industry has turned into something worse, with Tribune suffering more than most, and the credit markets the company will rely on to shoulder its debt having gone from easy to tight... since then, the trading price has sunk, at one point last Tuesday dipping below $25 — the lowest, adjusted for splits, in nine years. In deal-making circles, a small discount for uncertainty until a transaction closes is standard. But in this kind of situation, with Friday's closing share price of $25.67, it's another matter, a discount of nearly 25 percent."

What's the problem? "The main reason for the investor skepticism is the heavy debt load that Chicago-based Tribune would be carrying after it went private, plus the continuing decline in advertising revenue and cash flow from the company's TV stations and newspapers, including the Los Angeles Times," according to the Los Angeles Times.

What now? The NYT offers three possibilities. One, the deal goes through as planned, and Tribune takes on a assload more debt than initially planned. The second option assumes the deal fizzles out, leaving Tribune with heavy (but slightly less than the aforementioned assload) debt and none of the tax advantages that made the plan so attractive initially. The third choice? Zell renegotiates the deal. How would that fly?

"It'd take a shareholder vote to change the price, and all hell would break loose," a private equity executive tells the LAT, "but I'm betting all hell breaks loose."

Still, business reporting being what it is, you can always find optimists.

  • NYT: "Still, shareholders will almost certainly approve the deal, analysts and bankers say, if only because there is no better choice before them."
  • WSJ: "While some analysts have wondered whether Mr. Zell might back out, his limited exposure may give him little reason to do so. A person close to Mr. Zell said, 'Sam's perspective on his investment in Tribune hasn't changed. He is a long-term value investor and has an outlook that stretches well beyond a month or a quarter.'"
  • LAT: "More bullish observers said that Tribune still had the cash flow to cover its projected debt payments and could raise money by selling such attractive properties as its one-third stake in the Food Network, which some analysts have estimated is worth $1 billion."
  • So there you have it. The way it looks now, the only people who might really get screwed on the deal are Tribune employees. The deal relies on an "Employee Stock Ownership Plan, a type of benefit program that invests primarily in the employer company's stock. After the ESOP is formed here, it will buy the Tribune stock and become the sole owner of the Tribune Company; already, the company has halted contributions to most employees' retirement plans, money that will be used to help finance the ESOP." Should things go south, these are the people who are going to pay the price. Well, them and those of us who have to actually read about this stuff for a living.
  • Feel smarter now? Good!