Chicago billionaire Sam Zell has won the auction for control of the Tribune Co., paying $13 billion to beat out two Los Angeles-area billionaires with a winning bid of $34 a share. Zell is also supporting the new investment with a $315 million influx of cash. In addition, Mr. Zell will became a board member, and will become chairman once the deal closes. An Employee Stock Ownership Plan will hold all of the company then-outstanding common stock, which means that employees will essentially become part-owners, with Zell acquiring 40 percent of the stock.
Tribune is also going private and is putting the Chicago Cubs, which it has owned since 1981, up for sale. This completes the exodus of big media companies owning sports teams, with News Corp., Time Warner, and Disney all selling their sports properties in the last few years. In addition.
Tribune is selling its 25 percent stake in Comcast SportsNet Chicago, which carries the Cubs, as well as the White Sox, Bulls, and Blackhawks, plus other local sporting events. The cable channel is also a FSN affiliate. Comcast Sportsnet launched three years ago after the four pro sports teams bolted from Fox Sports Net Chicago, which finally folded in June 2006.
Deal could have complications for cross-ownership rules
Tribune owns WGN-TV in Chicago, as well as top-rated WGN-AM and the Chicago Tribune. When the cross-ownership rules were passed by the FCC in 1975, prohibiting newspapers, radio stations, and television stations in the same market. Many media companies want the rules thrown out because of technological innovations (such as the Internet), and they feel the rules are outdated. The Chicago cluster is grandfathered in because they pre-date the FCC decision.
However, Tribune bought the Los Angeles Times in 2000, where it has owned KTLA since 1985, and purchased Newsday in New York, where it has owned WPIX-TV since 1948. Tribune had to obtain temporary waivers to keep the media properties. Tribune also owns the Hartford Courant and Fox affiliate WTIC-TV in Connecticut’s largest city. Those waivers has since expired.
The new Tribune will now face regulatory and advocacy hurdles from anti-consolidation groups over the New York and Los Angeles media properties, and well as the Chicago ones, since the sale might invalidate the grandfather status. The battle over Tribune’s Chicago properties could wind up being a huge battleground, given many advocacy groups are based here, including Operation Push.
The FCC though, has been in an de-regulatory mood, thanks to its 3-2 Republican advantage, and could sack the cross-ownership rules. In Canada, the Canadian Radio and Television Commission has already allowed Bell Globemedia (now CTVGlobemedia) to buy The Toronto Globe and Mail newspaper, and CTV affiliate CFTO-TV in Canada’s largest market, and is weighing whether to let Bell Globemedia purchase CHUM, Inc. which owns radio stations throughout Canada (including CHUM-AM and FM in Toronto), and several TV stations, including the innovative CITY-TV also in Toronto. That would actually put CITY in a duopoly with CFTO, similar to the number of duopolies here in the United States. (The stations will continue to operate separately. That deal is likely to go through.
Whether or not if the FCC will let the Tribune has that same kind of luxury in the U.S. remains to be seen. It may not even matter. Newspaper industry experts think that Zell will sell some of the papers, especially the Los Angeles Times.
Update: Tribune shareholders lukewarm on deal (added 9:40pm)
Crain’s Chicago Business is reporting that some Tribune shareholders are not too impressed with the fact their shares are being cashed out in this new deal, mainly because the share price should have been higher than it is now.
Read the official Tribune press release here.