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Tribune shareholders back buyout

$8.2b deal still awaits FCC approval

CHICAGO -- Tribune Co. shareholders approved an $8.2 billion buyout led by billionaire Sam Zell and must now wait to see if his purchase of the second-largest US newspaper publisher can be completed as planned.

Zell's $34-a-share bid is 21 percent higher than Tribune's closing stock price yesterday. About 97 percent of shareholders voted for the purchase, chief executive Dennis FitzSimons said yesterday at Tribune headquarters in Chicago.

"This is the first of key milestones that we think the company needs to complete in the second half of the year in order to get the deal completed," said Mike Simonton, an analyst at Fitch Ratings in Chicago who rates Tribune bonds "highly speculative" or lower.

Tribune needs approval from the Federal Communications Commission, and must comply with loan covenants so that banks will lend the $4 billion needed to complete the deal. A 93 percent drop in profit in the first-half has led investors to question whether Zell will close the deal.

Simonton and Jake Newman of CreditSights Inc. say if the buyout goes through, Tribune may not be able to pay the $1.08 billion of annual interest on its $14 billion debt.

The company, which owns the Los Angeles Times and 23 TV stations, is awaiting FCC waivers allowing the prospective buyers to own newspapers and TV stations in the same market, the last major hurdle before the transaction closes.

Tribune shares rose 96 cents to $27.98 in New York Stock Exchange composite trading. They have declined 9.1 percent this year.

"Sam Zell is a capable guy, and I think he's going to make it happen," Phil Rosanski, who owns about 1,000 Tribune shares, said after the meeting. "There are some risks in the deal, but $34 a share is a cheap price for the assets of the Tribune."

If the transaction goes through at that price by Dec. 31, shareholders will earn an annualized return of at least 59 percent, based on yesterday's closing price. If it doesn't -- and Lehman Brothers Holdings Inc. analyst Craig Huber put the odds at "no better than 50-50" in an Aug. 14 note to clients -- shares may move as low as $4 to $5, Huber wrote.

Under the deal disclosed April 2, Tribune is buying back almost all of its shares. The company purchased 126 million shares in May, using money borrowed from banks led by JPMorgan Chase & Co., and will buy the remaining 118.4 million after regulators approve the deal. After that, an employee stock ownership plan will own the company.

The employee plan bought $250 million worth of stock at $28 a share using money borrowed from Tribune.

The publisher has said in regulatory filings it can meet debt payments because it won't pay taxes after the deal and because it has cut capital spending and its dividend.

Tribune's banks are committed to financing the rest of the transaction, FitzSimons, said last month. The company expects the deal to close by year-end.