Cablevision Buys Long Island's Newsday

Tribune's willingness to sell marks a reversal for Sam Zell, the Chicago real estate magnate who orchestrated a deal to acquire the newspaper chain last year using an employee-stock ownership plan. Originally, Zell said he intended to hold onto Tribune's newspaper and TV assets, but the accelerated deterioration of traditional business models in the newspaper industry has since changed his mind.

Tribune will retain a 3% stake in a tax-friendly joint venture it will form with Cablevision that will include Newsday, its Web site, some regional magazines and the free daily newspapers in the city, amNewYork. Cablevision will own 97% of the venture.

The deal will be financed by $650 million in debt provided by Bank of America (BAC Quote). Tribune will receive $612 million in cash, another $18 million in prepaid rent for leases for Newsday's real estate. The money will go towards paying down the Tribune's massive debt load, and its 3% stake in the venture will be valued at $20 million.

Tribune, struggling under a debt loan valued at $13 billion, paid $263 million in interest in the first quarter of this year.

Meanwhile, Tribune has other newspapers it could sell. Local buyers have expressed interest in The Los Angeles Times, The Hartford Courant and The Baltimore Sun.

By selling Newsday, Tribune will give up its position as the second-largest newspaper publisher in the U.S. behind Gannett (GCI Quote) to McClatchy (MNI Quote), a company that's facing the wrath of shareholders after seeing its value plummet following the acquisition of several newspapers from the dissolved Knight-Ridder chain.

New York Times (NYT Quote) recently accepted two dissident shareholders onto its board of directors, reflecting pressure from public shareholders on the family-controlled company to restructure.

Cablevision shares were up fractionally to $23.68 in recent trading.