CHICAGO – Cablevision Systems Corp. late Sunday finalized a deal for control of Newsday, Tribune Co.’s Long Island, N.Y., newspaper, in a transaction worth $650 million that’s set to be unveiled Monday.

“This agreement enables us to maximize the value of Newsday and still retain an interest in this valuable asset,” Tribune Co. Chairman and Chief Executive Sam Zell said in a prepared statement. “The newspaper has a unique circulation base and a tremendously strong local brand. I expect them to grow and flourish as a result of the new partnership.”

Cablevision will hold 97 percent of the equity in a joint venture with Tribune Co. for the Newsday Media Group, which includes Newsday, the free tabloid AM New York and other area publications.

Tribune Co., the parent of the Chicago Tribune, will get $612 million in cash, 3 percent of equity in the new partnership worth $20 million and $18 million in prepaid rent on major real estate it will retain, including Newsday’s headquarters and printing plant in Melville, N.Y.

The deal, expected to close in the third quarter, calls for Cablevision to issue bonds worth $650 million. Bank of America has committed to providing $650 million of senior debt financing, according to sources, who say the transaction is structured to reduce Tribune Co.’s exposure to taxable capital gains.

News of the imminent Cablevision-Tribune Co. announcement came only a day after Rupert Murdoch’s News Corp. announced it was withdrawing its $580 million offer for Newsday.

Tribune Co. and News Corp. had an informal agreement for the paper, but that was before Cablevision, which was advised by former Tribune Co. Chairman and CEO Dennis FitzSimons, upped its bid from $500 million. Murdoch, who said he hoped to realize $100 million in annual cash flow improvement through operation of Newsday in tandem with his New York Post, expressed confidence he would land the paper as recently as last Wednesday in a conference call with analysts and reporters.

But Tribune, which went private late last year in a heavily leveraged $8.2 billion deal engineered by Zell, ultimately could not overlook the difference in value between the Cablevision offer and similar proposals from News Corp. and Mort Zuckerman, publisher of the Post’s rival, the New York Daily News.

News Corp.’s lower bid was not discounted initially because Murdoch and Zell seem to have a budding relationship, which already has led to a deal enabling Tribune Co.’s San Diego television station to become an affiliate of News Corp.’s Fox Broadcasting Network this summer.

Sources have indicated there still may be room for an agreement between Newsday and News Corp. that provides some of the cost-saving synergies in publishing and distribution Murdoch sought in pursuing control of the paper.

Cablevision is a cable television, communications, sports and entertainment conglomerate run by the Dolan family, and although the Dolans are practically Long Island royalty, the hometown newspaper is seen by some analysts as an odd addition to their empire.

Cablevision faces fewer regulatory hurdles to a Newsday deal than would News Corp. because it does not currently own a newspaper, but it also does not stand to take advantage of the same efficiencies a publisher would. Its hope is to use Newsday to complement its role as a major provider of video, broadband and phone services in Long Island as well as in its 24-hour News 12 news service.

Upon taking over Tribune Co. in December, Zell said he didn’t foresee selling off core assets, which include 23 television stations and nine daily newspapers. But he has said worse-than-expected performance by the company’s newspapers has forced him to reconsider.

The most recent figures from the Schaumburg-based Audit Bureau of Circulations, covering the six months ended in March, ranked Newsday 11th nationally in weekday circulation, averaging 379,613 copies, and 16th on Sundays, averaging 441,728.

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Distributed by McClatchy-Tribune Information Services.

AP-NY-05-11-08 2228EDT