By MATTHEW KARNITSCHNIG, SHIRA OVIDE and VISHESH KUMAR
May 12, 2008 9:27 a.m.
The Wall Street Journal
The bid from the Long Island-based cable operator bested matching $580 million offers from News Corp., which owns the New York Post and The Wall Street Journal, and New York Daily News owner Mortimer Zuckerman. News Corp. had had an informal agreement for Newsday, but was unwilling to match Cablevision’s offer and revoked its bid on Saturday.
“It is both an honor and privilege to return Newsday back to Long Island-based ownership after nearly 40 years,” Cablevision Chairman Charles F. Dolan said in a prepared statement. “We are committed to maintaining Newsday’s journalistic integrity and important position in the market place.”
Under the agreement, Cablevision will have about 97% and Tribune about 3% of the equity in a partnership that owns Newsday. The deal was expected to be structured as a joint venture for tax reasons.
Tribune Chairman and CEO Sam Zell said: “This agreement enables us to maximize the value of Newsday and still retain an interest in this valuable asset.”
Cablevision will contribute newly issued bonds with a $650 million fair market value on the contribution date, withBank of America Corp. providing that amount of senior debt financing. Chicago-based Tribune will receive $612 million in cash, and an equity stake in the partnership valued at $20 million. It will also get $18 million as prepaid rent on certain facilities used in the business.
The Newsday businesses will report to Cablevision Chief Operating Officer Thomas Rutledge.
Clinching the deal puts Cablevision in control of Newsday and related assets, including the free New York City newspaper amNew York.
Newsday’s sale reflects the troubles of the newspaper industry. Mr. Zell, who led an $8.2 billion buyout of Tribune in December, had said he hadn’t wanted to sell any of the major papers. But conditions worsened. However, the deal also shows how certain local buyers see strategic value in individual newspapers.
The transaction will help Tribune dent nearly $13 billion of debt largely stemming from a December deal to go private. Tribune owes about $650 million in debt repayment before the end of this year. The company also faces rising interest expenses — $263 million in the first quarter alone.
With advertising declining quickly at Tribune’s newspapers, the company may face pressure to unload other properties to meet debt and interest payments next year. It owns papers including the Los Angeles Times and the Chicago Tribune, and television stations. It is selling its Chicago Cubs baseball team.
While a Newsday deal will ease Tribune’s debt load, the company will lose an important asset. The daily and its related businesses had nearly $500 million in revenue last year, about 10% of Tribune’s revenue, according to the company’s annual report filed with the Securities and Exchange Commission.
For Cablevision, the Newsday acquisition provides an outlet to cross-sell advertising and promote its own services and properties in the New York area. As the company’s cable, telephone and Internet offerings face competition fromVerizon Communications Inc., Cablevision seems to be to doubling down on its local focus in an effort to retain customers. Last week, the company announced it would spend more than $300 million to build out a local wireless service.
Still, Cablevision has faced skepticism about its pursuit of Newsday. Some analysts have argued it would be better for shareholders if Cablevision were to return the cash it generates in the form of stock buybacks.
Cablevision could use its footprint in Long Island and adjacent areas of New York City to increase the newspaper’s circulation by about 100,000, predicts Kevin Kamen, chief executive of media appraisal firm Kamen & Co. Kamen & Co values newspapers and magazines internationally. Newsday currently has a weekday circulation of about 380,000.
The Newsday deal could mean changes in the New York media world. With the inclusion of Newsday, News Corp. could have improved the financial performance of the New York Post, which was expected to combine advertising, printing and other functions with Newsday. Now the Post is expected to be more aggressive in cutting costs and finding new revenue streams. News Corp. Chairman Rupert Murdoch has said the company plans to double the cover price of the paper to 50 cents. He also said the paper had taken steps that would save more than $20 million in costs this year.
A Newsday takeover by either News Corp. or Mr. Zuckerman also was expected to face more regulatory hurdles than a Cablevision deal. Both rivals could have faced tougher antitrust scrutiny, given their existing New York newspaper holdings. Because of News Corp.’s ownership of two New York TV stations, a Newsday deal might have made it more difficult for the company to receive waivers from regulations that typically bar ownership of local newspapers and TV stations in the same market.
For his part, Mr. Zuckerman seemed unfazed by the outcome. Reached at his home Sunday, Mr. Zuckerman said he was taking a piano lesson, adding that his daughter had just expressed admiration for his rendition of Andrew Lloyd Webber’s “Memory.”