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Deal Worries Trail Tribune

Shareholders overwhelmingly approve a buyout, but credit fears have the stock at a big discount.

At this point,



shareholders are worried about getting less cash for their stock -- not more.

The shareholders overwhelmingly approved the media conglomerate's pending going-private transaction in a vote held Tuesday. While the stock was climbing 3.6% to $28 after the vote, it remained far below the price of $34 a share offered in the deal.

The disconnect between the market's valuation of Tribune and the company's price tag approved by shareholders stems from fears on Wall Street that the deal's financing will fall through, now that easy credit has disappeared from the marketplace.

Tribune is a business in sharp decline. Its borrowing costs are on the rise, and it's about to take on a staggering $13 billion in debt as part of its going-private deal. Meanwhile, economic storm clouds are gathering as a spike in mortgage default rates amid a slumping housing market has brought the world's free-flowing credit markets to a resounding halt.

The company is being thrust into the hands of its employees through an employee stock ownership plan, or ESOP, that will buy the stock for the discounted price. Overseeing the transaction is the swashbuckling real estate investor Sam Zell, who is putting up $315 million of his own capital.

Zell will be chairman of Tribune upon the transaction's closing -- expected in the fourth quarter -- and will have an option to buy 40% of the company in the future. Under its ESOP structure, Tribune will then not have to pay taxes, and it can sell off assets like its broadcast properties and its baseball team, the Chicago Cubs, to pay down debt. If it can continue to manage its debt load, it could thrive.

In the meantime, Tribune is waiting for federal regulators to grant it waivers from government rules banning same-market ownership of television and newspapers. It will also undergo an independent solvency analysis later this year.

Zell has repeatedly pledged not to back out of the deal. But if conditions in the credit markets get worse, Zell could try to renegotiate the terms of the buyout at a lower price.

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Analysts on Wall Street say the deal will get done, but Standard & Poor's Ratings Services underscored the market's concerns Monday when it lowered its ratings on Tribune, saying its status will remain on credit watch with negative implications until the close of the company's $8.2 billion buyout.

Preliminary results of the vote tally indicated 97% of those shareholders casting votes Tuesday approved the deal.

Asked at the shareholders' meeting in Chicago whether the company had plans to sell any of its newspapers -- like the

Los Angeles Times

, the

Chicago Tribune

, the

Baltimore Sun

and the

Hartford Courant

-- Tribune CEO Dennis FitzSimons said, "Not at this point."