By Frank Ahrens
Washington Post Staff Writer
Thursday, March 29, 2007

Two powerful forces are pushing Tribune Co.'s board of directors toward Chicago billionaire Sam Zell's bid for the troubled media empire: the rapid and recent deterioration of the newspaper advertising market and the backing of Tribune's largest and most contentious shareholder group, people close to the company said.

Saturday is the company's self-imposed deadline for deciding what to do. The board's favored plan is to accept Zell's outside offer, though it could still pursue its own refinancing plan. And Southern California billionaires Ronald Burkle and Eli Broad could still sweeten their offer, which Tribune put on the back burner last month because it would give the pair control of the company.

In recent weeks, Zell's $8 billion bid for Tribune's nine newspapers and 25 television and radio stations has looked more attractive to the company's board, said a source close to the situation who spoke on the condition of anonymity because discussions are ongoing. Zell, a real estate magnate who recently sold Equity Office Properties for $39 billion, is offering $33 a share for Tribune, a 6 percent premium on yesterday's share price.

Representatives for Zell and Burkle and Broad declined to comment. A Tribune spokesman also declined to comment.

Prodding the Tribune board toward Zell's bid from inside the company are the Chandler Trusts, established for about 170 descendants of the founders of the Los Angeles Times and the Times Mirror media company. The trusts gained 20 percent of Tribune stock and three seats on the board after Tribune's 2000 purchase of Times Mirror. If the Tribune board accepts Zell's bid, the trusts could cash out their Tribune holdings and reinvest them elsewhere.

The external pressure on Tribune comes from an accelerated fall in advertising revenue, which hurts the company's ability to borrow money for a refinancing deal.

Last week, Tribune reported that advertising sales across the company's newspaper division were down 5 percent in February, compared with February 2006. That followed a 7 percent decline in January.

Almost all large newspaper chains had a steep drop in ad revenue in the first two months of 2007, owing to downturns in the sectors that supply most newspaper advertising: job recruitment, automakers and dealers, department stores and, most significantly, real estate and mortgage financing.

Tribune's ad woes make the company less attractive to potential lenders, and one of the company's options depends on borrowing billions of dollars. A "self-help" plan long in the works would spin off Tribune's television stations to raise money, recapitalize the company with a loan and pay a one-time dividend to shareholders.

But if Tribune chooses that plan and seeks to borrow money, its loan would be more expensive than it would have been this time last year, analysts say. The perceived risk of owning Tribune bonds has shot up in recent days, according to services that track the bond market.

"Further, any self-help plan may wind up hurting the company, said Edward Atorino, media analyst for Benchmark Co. "Going it alone would be a disappointment to the market and the stock would go down," he said, explaining that the market is hoping for a sale to Zell.

Tribune shares rose 3 cents yesterday, to $31.13.