Round 2 in Tribune bidding

Now that the preliminary bidders have gotten a look at the company's books, the next step happens in a week or so when they decide whether to stay in the game or bail. Chicago Tribune story notes that management has spent November making presentations to the interested parties: a group of private equity firms, Broad and Burkle and Gannett Co. "We think there will be offers [for the whole company]," one source told the paper. "But you don't know anything until the fat lady sings." From the story:

One source among the bidders said the presentations did little to ease concerns about the problems that led to a lackluster set of preliminary bids three weeks ago. There are some bright spots, like Tribune's 42.5 percent ownership of online job site CareerBuilder and stakes in several other Internet properties. But whether they outweigh the negatives is a conundrum bidders will have to wrestle with over the Thanksgiving holiday.

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Buying Tribune outright would likely require $2 billion to $2.5 billion in equity up front, investment bankers say. To cover its bet, a private-equity firm would typically want to pull that much money back out of the company as quickly as possible, either by selling assets or loading the company up with debt and taking a dividend, or perhaps both. Most observers believe a buyer could sell Tribune's TV stations, the Cubs and probably some of Tribune's smaller newspapers, helping repay its equity. What would be left, and virtually paid for, would be the major papers and Tribune's Internet assets. Assuming those properties could support the debt involved in such a deal, any increase in their value would be gravy for the buyer. But even sources on the Tribune side of the auction acknowledge that making that kind of deal work could be challenging.

The biggest problem, according to the story, is that revenues have dropped so much in the second half of this year it's difficult to project cash flow. And without firm projections, it's hard to know how much debt the company could support. And don't forget the tax exposure. Tribune is still talking about a decision by the end of the year, but that would be all but impossible if the company starts selling off assets, one by one.