By Gillian Wee and Tim Mullaney
May 12 (Bloomberg) -- Cablevision Systems Corp., the New York-area cable provider, topped offers from Rupert Murdoch and Mortimer Zuckerman to buy Tribune Co.'s Newsday in a transaction valuing the Long Island newspaper at $632 million. Tribune will get $612 million for a 97 percent stake in Newsday, plus an additional $18 million in prepaid rent for some facilities, the companies said in a statement today. Tribune will keep a remaining 3 percent stake worth $20 million. Cablevision plans to use Newsday, located about 7 miles from its Bethpage headquarters, to expand local advertising and subscription businesses. Murdoch's News Corp. dropped a $580 million bid on May 10, saying a purchase was no longer economical. For Tribune Chairman Sam Zell, the higher offer from Cablevision helps him pay down the $13 billion in debt he acquired through his takeover of Chicago-based Tribune last year.
``If Rupert Murdoch, with an adjacent market newspaper and local TV broadcaster, can't see a way to make money at $580 million, it's a stretch to think that Cablevision can make this work at $650 million,'' said Craig Moffett, an analyst at Sanford C. Bernstein & Co., before the announcement. He has an ``outperform'' rating on Cablevision and doesn't own the shares. Cablevision said last week that it wouldn't rule out more acquisitions beyond cable after announcing plans to build a high-speed wireless network and purchase the Sundance Channel for independent films. The Bethpage, New York-based company also owns Madison Square Garden and the New York Knicks basketball team.
Cablevision, led by Chairman Charles Dolan and his son, Chief Executive James Dolan, said in today's statement that they will use Newsday to generate ``substantial operating cash flow'' as they expand in local ads and subscriptions. The company's stock dropped 63 cents, or 2.5 percent, to $24.34 at 10:48 a.m. in New York Stock Exchange composite trading and had risen 1.9 percent this year before today. Gains have been held back on concern over the Dolans' investments outside of their main business, according to Richard Greenfield, an analyst at Pali Capital LLC in New York.
``All they seem intent on doing now is making acquisitions in non-core businesses,'' Greenfield said in an interview today with Bloomberg Television. He raised his recommendation on Cablevision to ``neutral'' last week. ``This is not like buying a brand like Dow Jones or the New York Times. This is a very challenged long-term business.'' Zell, who took control of Tribune last year, is cutting jobs and selling assets to repay debt as print advertising and circulation decline. Tribune is the second-largest U.S. newspaper publisher after Gannett Co. The owner of the Los Angeles Times and Chicago Tribune has $1.85 billion in debt maturing by the end of 2009. The company also plans to sell its Chicago Cubs baseball team and the Cubs' home stadium, Wrigley Field.
New York Daily News owner Zuckerman declined to comment on his bid today. News Corp.'s decision to drop its offer came three days after Chairman Murdoch said talks with Chicago-based Tribune were at a ``pretty advanced stage.'' Murdoch, who completed News Corp.'s $5.2 billion purchase of Dow Jones & Co. in December, had planned to combine Newsday's printing and distribution operations with his New York Post. The move would have helped News Corp. increase cash flow by $100 million a year, Murdoch said on a May 7 conference call. Newsday had a circulation of 379,613 in the six months through March, according to the Audit Bureau of Circulations. That's a 4.7 percent drop from a year earlier. The newspaper had $80 million in earnings before interest, taxes, depreciation and amortization last year, a person familiar with the sale talks said last month. Cablevision was advised by Banc of America Securities LLC and Merrill Lynch & Co., as well as Hughes Hubbard & Reed LLP and Sullivan & Cromwell LLP. Tribune was advised by Citigroup Inc., McDermott Will & Emery, Sidley Austin and Paul Hastings.