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Cablevision announces deal to buy Newsday

By Carol Eisenberg

May 12, 2008 at 12:50pm

A Long-Island-based suitor with deep pockets, but no newspaper experience has emerged the surprise winner in the bidding war for Newsday, the Long Island tabloid put up for sale by the debt-ridden Tribune Company.

Cablevision Systems Corp. announced this morning that it has agreed to pay $650 million for the Melville-based paper in a move that baffled many analysts, but which the company contends will reinforce its clout as a regional information giant.

Cablevision, which also owns Madison Square Gardens, the New York Knicks, the New York Rangers, and a cable distribution system that includes Long Island’s Channel 12, was a late-entrant to the bidding contest. But the Dolan family, which controls the company, one-upped earlier offers from media moguls Rupert Murdoch, owner of the rival New York Post and the Wall Street Journal, as well as from Mortimer Zuckerman, owner of the New York Daily News.

Cablevision Chairman Charles F. Dolan said that adding Newsday to its stable will allow the company to better market the newspaper to Long Island households that don’t yet subscribe, while tapping Newsday’s expertise in ad sales to boost its cable TV advertising business.

“It is both an honor and privilege to return Newsday back to Long Island-based ownership after nearly 40 years,” he said in a statement. “We are committed to maintaining Newsday’s journalistic integrity and important position in the market place.”

As recently as last Wednesday, Murdoch had said he expected to close the deal on Newsday in days. But on Saturday, he withdrew from the contest, apparently unwilling to match Cablevision’s higher bid.

Under the agreement, Cablevision will have about 97% and Tribune about 3% of the equity in a partnership that owns Newsday. The deal was expected to be structured as a joint venture for tax reasons. The purchase is expected to be completed in late July or early August.

Chicago-based Tribune will receive $612 million in cash, and an equity stake in the partnership valued at $20 million. It will also get $18 million as prepaid rent on certain facilities used in the business.

“This agreement enables us to maximize the value of Newsday and still retain an interest in this valuable asset, ” said Tribune Chairman and CEO Sam Zell.

While a Newsday deal will ease Tribune’s debt load, the company will lose an important asset. The daily and its related businesses had nearly $500 million in revenue last year, about 10% of Tribune’s revenue, according to the company’s annual report filed with the Securities and Exchange Commission.

For Cablevision, the Newsday acquisition provides an outlet to cross-sell advertising and promote its own services and properties in the New York area. The company’s cable, telephone and Internet offerings face competition from Verizon Communications Inc. Last week, the company announced it would spend more than $300 million to build out a local wireless service. It also spent $496 million in stock and cash the same week to acquire the Sundance Channel, a deal that was tepidly accepted by most investors and analysts.

The New York Times reported Monday that the Newsday bid was backed both Dolans — James Dolan, the chief executive, and his father, Charles F., the company founder — even if the two still have an uneasy relationship. Three years ago, father and son fought publicly over the fate of an expensive satellite project called Voom, a favored venture of the elder Mr. Dolan’s; when it lost millions, his son shut it down.

In mid-day trading Monday, shares of Cablevision were down 66 cents, or 3 percent, to $24.31. Stock analysts had expected News Corp. to acquire Newsday and have been critical of Cablevision’s plans.

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