Monday, May 18, 2009

The Details

Crain's follows on with more details on where the Ricketts are in the purchase process. The last remaining sticking point is, as guessed here, the actual purchase price. It seems $900 million is just too much:

Thomas Ricketts, who is leading his family’s bid for Tribune Co.’s Cubs, has lined up financing for the deal, but a dispute over price is delaying the transaction.

The Ricketts family, whose original bid was close to $900 million, now believes the real price should be closer to $850 million, a source said. The sides disagree over the value of the team’s multiyear contract to broadcast games on Tribune’s WGN network.

At issue is about $40 million to $50 million — roughly 6% of the original bid, which also includes Wrigley Field and a 25% stake in regional cable channel Comcast Sports.

Broadcasters pay sports teams for the right to air games. The contract between the Cubs and WGN, which was inked last fall, might have been set too low, given that the broadcaster and the sports team have been owned by the same parent: Tribune Co.

Mr. Ricketts and a Tribune spokesman decline to comment.

The Ricketts family last week worked out final details on a $350-million loan from J. P. Morgan Chase & Co., Citigroup Corp. and Bank of America Corp. The Ricketts family in February sold about $403 million in TD Ameritrade stock to raise cash for the buyout. Separately, Barclays PLC is marketing a $100-million private placement of notes with institutional investors, a source said.

To summarize:
1) The Ricketts have arranged $703 million in financing with another $100 million being sought from private investors by Barclays.

2) The Cubs-WGN contract is not inked at market price and therefor provides the Cubs with below-market cash flow. Since a large determinant of purchase price is a multiple of cash flow, lower cash flow reduces the value of the team.

Reason #2 is a bunch of crap. Since the Cubs and WGN are the same company, there's no reason that contract couldn't be voided by mutual agreement. This argument is simply posturing by the Ricketts to get the price reduced.

The real number to look at here is how much cash the Ricketts now have at the ready. Assuming the credit package is signed, there is $803mm on the table to close. The Ricketts family probably also has some cash on hand that could be thrown into the deal outside of cash generated from their recent stock sale. But not $97 million.

This deal still does not close at $900 million. If it falls apart, still a possibility, look for the WGN contract to be used as the excuse.

That's potentially hilarious given that fewer and fewer games are even on WGN anymore.

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