Cablevision beat out media mogul Rupert Murdoch, CEO of News Corp., who withdrew his own $580 million bid on Saturday. New York Daily News owner Mortimer Zuckerman had also bid $580 million.
The deal brings Newsday back to local ownership on Long Island. Tribune had been seeking to sell Newsday to lighten an $8.2 billion debt load it took on last year when it went private in a deal orchestrated by real estate mogul Sam Zell.
Chicago-based Tribune will retain a 3 percent stake in a joint venture to be formed containing Newsday as well as several related assets, including Newsday.com, some regional magazines and the free daily newspaper in New York City amNewYork. Cablevision will hold the remaining 97 percent.
The deal will be financed by $650 million in debt provided by Bank of America. Tribune will receive $612 million in cash, another $18 million in prepaid rent for leases of facilities that Newsday will continue to use, and its 3 percent stake in the venture will be valued at $20 million.
Cablevision said owning Newsday will allow the company to better market the newspaper to the many households on Long Island that don't yet subscribe to it, while tapping Newsday's expertise in ad sales to help Cablevision's own cable TV advertising business.
Cablevision, which is controlled by the Dolan family, runs one of the most advanced cable TV operations in the industry and has about 3.1 million subscribers in the New York metro area. The company also owns Madison Square Garden, the NBA's New York Knicks, the NHL's New York Rangers.
"We admire Newsday's strong editorial voice and reputation for quality as well as its leadership in print and online journalism," Cablevision Chairman Charles Dolan said in a statement.
"We are committed to maintaining Newsday's journalistic integrity and important position in the marketplace," Dolan said.
Some investors are concerned about Cablevision's entry into the newspaper business and its apparent appetite for acquisitions, particularly given the challenges facing newspapers as more advertisers go online.
Its shares fell 32 cents to $24.65 in morning trading Monday.
Newsday is the second major acquisition in a week for Cablevision following its nearly $500 million purchase of Robert Redford's Sundance Channel cable network on May 7.
That deal didn't seem to ruffle investors as much given its fit into Cablevision's portfolio of cable networks including AMC, IFC, WE tv, and a local news cable channel called News 12.
Newsday is the 11-biggest newspaper in the country, according to the latest figures from the Audit Bureau of Circulations, with 379,613 average paid weekday copies in the six-month period ending in March.
Tribune is a major newspaper company that also owns the Los Angeles Times and the Chicago Tribune. It became an employee-owned company last year.
Zell had originally planned to keep the company's newspapers and TV stations largely intact while selling some other assets such as the Chicago Cubs baseball team.
He changed his mind about Newsday following a rapid deterioration in the company's newspaper business, which last week reported an 11 percent decline in first-quarter revenues. It's not yet clear whether Zell intends to sell other Tribune media properties as well.
Cablevision said that with Newsday under its ownership it will be able to offer more diverse packages of advertising while also tapping Newsday's large variety of online content to offer interactive services to Cablevision's 2.3 million high-speed Internet customers.
Tribune had been the No. 2 newspaper publisher in the country prior to the Newsday sale, just head of the Sacramento, Calif.-based company McClatchy Co. With the Newsday sale McClatchy is sure to become No. 2, and Tribune No. 3, behind industry leader Gannett Co., which publishes USA Today.
Bank of America acted as the lead financial adviser to Cablevision while Citigroup advised Tribune.