Aug. 14 (Bloomberg) -- Tribune Co. said its $8.2 billion sale to a group led by billionaire Sam Zell is still on, disputing an analyst's report that said the odds of the deal closing as scheduled are no better than 50-50.
Shares of Tribune fell the most in almost five years after Craig Huber of Lehman Brothers Holdings Inc. cut his earnings estimates for the second-largest U.S. newspaper publisher and questioned whether the $34-a-share leveraged buyout will happen. The shares recovered after the company's comments.
``I would reiterate what we said a month ago,'' Tribune spokeswoman Ruthellyn Musil said today in an interview. On July 25, Chief Executive Dennis FitzSimons said in a statement the company, publisher of the Los Angeles Times, planned to go ahead with the sale and that it expects to remain in compliance with the terms of the financing commitments.
Shares of Chicago-based Tribune declined 49 cents to $25.28 at 4:03 p.m. in New York Stock Exchange composite trading after falling as much as $1.32, or 5.1 percent. They have declined 18 percent this year.
The Zell buyout is backed by lenders including JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co. and Citigroup Inc. Contracts commit the banks to the loans unless Tribune's 2007 profit misses certain targets, Barclays Capital bond analyst Hale Holden said. So far, it hasn't, he said.
Tribune may be worth as little as $4 to $5 a share if the Zell deal collapses, Huber wrote today in a note to clients. The Chicago-based company's earnings before interest, taxes and non- cash costs will be $1.08 billion this year and $990 million next year, he projected, down from previous estimates of $1.09 billion and $1.04 billion, respectively.
Analyst's Odds
``The likelihood of the Tribune privatization deal happening in the upcoming months is no better than 50-50,'' Huber wrote. The company has more debt than it can easily handle and ``should not be adding more debt to its capital structure given the ongoing secular decline in the fundamentals across Tribune's newspapers and TV stations.''
Huber, who is based in New York, rates Tribune shares ``underweight'' and doesn't own the stock. He didn't return a phone call seeking comment.
Credit-default swaps used to bet on Tribune ability to repay its debt were little changed, falling 5 basis points to 865 basis points, according to Credit Suisse Group prices.
Contracts
The five-year contracts have doubled since May as investors bet the company will have trouble meeting interest payments after the buyout. Today's stability suggests there is little change in the bond market's belief that the deal will close.
An increase suggests deterioration in the perception of credit quality; a decline suggests the opposite. The price means it costs $865,000 a year to protect $10 million in Tribune bonds for five years.
Tribune's 11 metropolitan newspapers also include the Chicago Tribune. The company also owns 23 TV stations, the Chicago Cubs baseball team, a 31 percent stake in cable TV's Food Network, and 41 percent of the CareerBuilder.com job- hunting Web site.
To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net
