News Corp. Plans to Buy Newsday From Zell, People Say (Update2)

By Gillian Wee and Leon Lazaroff

April 22 (Bloomberg) -- Rupert Murdoch's News Corp., the company that acquired the Wall Street Journal in December, plans to buy Long Island's Newsday newspaper from Tribune Co. for $580 million, according to two people with knowledge of the negotiations.

News Corp. would combine its New York Post newspaper into a venture with Melville, New York-based Newsday, said the people, who declined to be identified because the terms aren't final. Tribune, the second-largest U.S. newspaper publisher after Gannett Co., would have a stake of less than 5 percent in the new entity, the people said.

The acquisition would let Murdoch merge printing and distribution operations to lower costs. Sam Zell, who took control of Chicago-based Tribune last year, is cutting jobs and selling assets to counter print advertising declines and pay back $13 billion of bonds and loans.

``Combining Newsday and the Post would go a long way to erasing the Post's perennial losses,'' said Chris Marangi, a fund manager at Gamco Investors Inc. in Rye, New York, which owns more than 14 million News Corp. shares among its $30 billion in assets. ``I don't think anybody is pushing News Corp. to buy more newspapers but given what they own, this one makes sense at the right price.''

News Corp. Class A shares, down 12 percent this year, dropped 50 cents, or 2.7 percent, to $17.96 at 4:01 p.m. in New York Stock Exchange composite trading.

Print Expansion

Newsday had $80 million in earnings before interest, tax, depreciation and amortization last year, one of the people familiar with the talks said. A deal may be announced within the next two months, the person said.

News Corp. spokesman Jack Horner and Newsday spokeswoman Deidra Parrish Williams declined to comment.

``In an ideal world, we prefer not to see News Corp. increasing its newspaper investment,'' said Richard Greenfield, an analyst at Pali Capital in New York. He recommends investors buy News Corp. shares and doesn't own any himself. ``It's increasingly hard to see how the business grows. The big issue remains, is this even possible from a regulatory standpoint?''

Murdoch paid $5.2 billion for Dow Jones & Co., the owner of the Wall Street Journal. He has pledged to expand the newspaper beyond financial news to cover more politics, arts and fashion, and take on the New York Times.

`Till Death'

Murdoch, 77, told students at Georgetown University this month that a purchase of Newsday would give the New York Post a ``more secure future'' and help it compete with the New York Times for advertising. Mortimer Zuckerman of the New York Daily News and Cablevision Systems Corp. Chief Executive Officer James Dolan also considered buying Newsday, the Times reported last month.

Murdoch is ``looking at it strictly from a financial standpoint,'' said Richard Dorfman, managing director of New York-based investment firm Richard Alan Inc. ``He loves the Post, till death do us part. Where there are synergies, he would be able to wring out a lot of excess cost.''

Zell, Tribune's 66-year-old chairman, is trying to find ways to cut debt after leading the $8.3 billion buyout of the company. He said on an April 17 conference call with bondholders that he doesn't foresee any snags in making debt payments. 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 Wrigley Field stadium.

To contact the reporters on this story: Gillian Wee in New York at gwee3@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net.

Last Updated: April 22, 2008 16:11 EDT

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