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Sam Zell, The Dolans, Tribune, Cablevision, Arbitrage And More

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November 13, 2007

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

What any ordinary investor buying stock really cares about is whether he is going to make money.  Losing is not what it’s really all about.

So looking at philosophical approaches to playing the market can reveal a wealth of ideas into what it takes, although when politics comes in you are talking about the death of philosophy since that isn’t what politics is all about.

Sam Zell is a wealthy investor based in Chicago seeking to become owner of Tribune Corp., TRB, a large media company with interests in newspapers and broadcasting.  He is a value investor.  He believes he can use cash flow as expressed by EBITDA, that is, earnings before interest, taxes, depreciation and amortization, to pay the costs of borrowing several billion dollars to become the owner (along with an employee stock option plan) of the company and also capitalize on tax shelter laws to hold on to a larger percentage of the capital appreciation that results.

Mr. Zell has offered $34 a share for the company, but the closing is being held up by the need for an FCC waiver so the company can retain some broadcast assets rather than be forced to divest at less favorable prices.  TRB is currently selling around $27.20 a share reflecting some doubts raised by a 2% drop in newspaper readership.

Since Mr. Zell has more than once reaffirmed his interest in completing the deal anyone interested in arbitrage, that is, making money from the difference from the offering price and the stock selling price, could make 20% in three or four months, the time it would take to receive a check paying for shares.  This translates into a return of 60% for the year.  Not bad.

Already some assets such as two comparatively small Connecticut newspapers and probably the Chicago Cubs baseball team are being liquidated to provide cash for Tribune.

In contrast, an offer to take Cablevision, CVC, private by the Dolan family, who already run and control the company, for $36.28, was rejected by other stockholders as inadequate even though the offer was towards the high end of purchase prices per cable customer.  At $26 or $28 or whatever the current price is many arbitragers are looking at losses.  So much for a safe investing philosophy.

The conclusion that can be drawn is that while it is possible to make money if you have a realistic strategy, it is also possible to lose money if the politic of a body turns against you.

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