A boardroom split over Tribune Co.'s stock buyback plan had investors wondering Wednesday whether the disagreement was the first move toward putting the media giant into play for a possible takeover, or simply a negotiation between the company's most powerful players.
Tribune's stock rose 31 cents Wednesday to $30.31 -- its highest close in more than two months -- a day after the company said that three of its directors had opposed the refinancing announced May 30. The three directors represent the Chandler family of Southern California, which has owned 12% of Tribune since the company bought Times Mirror Co., including the Los Angeles Times, in 2000.
"Investors are thinking, 'Aha, this could be a company that winds up in play,' " said industry analyst John Morton of Morton Research Inc.
Tribune Chief Executive Dennis FitzSimons said in an e-mail to employees Wednesday that the board approved the $2-billion plan by an 8-3 vote and that the company intended to proceed with the buyback of as much as 25% of its shares.
The Chandlers asked Chicago-based Tribune to make public their vote against the plan, FitzSimons said in the e-mail. Their dissent was noted in a filing Tuesday with the Securities and Exchange Commission.
A spokesman for the trusts that control the Chandler family investments declined to comment, and the three directors did not return calls.
People familiar with the disagreement and who spoke on condition of anonymity gave two explanations for the schism, while disagreeing over which was a bigger factor.
The first is that the Chandlers believe that Tribune should look into solutions such as a sale or breakup of the company before embarking on a financial overhaul such as the stock buyback, which would sharply increase the company's debt.
The second explanation is that the Chandlers and Tribune are squabbling over how to unwind two investment partnerships between the family and the company. Tax laws will allow the second partnership to be dissolved this year, and the two sides are well apart on valuations of the ventures.
Some investors said they were puzzled over the Chandlers' motives but hoped that potential buyers would emerge or that Tribune managers could raise money to take the company private.
"We're all surprised they would vote against something that has sent the stock up 10%. We've been sitting around all day speculating," said one big investor, who asked not to be named because of the sensitivity of the situation. "The only thing I can come up is they wanted a bigger transaction."
Investment bankers and analysts said that it might be easier for Tribune to split itself up than try to attract a buyer at an acceptable price. The recent auction of newspaper chain Knight Ridder Inc., for example, drew only one media company bidder: McClatchy Co.
Tribune's buyback has proved popular with many shareholders because it would lift earnings per share and it represents a bet by the company that the stock will continue to rise. Tribune is buying back shares at between $28 and $32.50 in a tender offer, and it also plans to sell $500 million in assets and cut annual costs by $200 million.
"We believe the announced stock repurchase program is in the best interest of the company and its shareholders," said Charlie Bobrinskoy, vice chairman of Ariel Capital Management, which owned about 3.4% of Tribune shares on March 31. But he added that the buyback "is only the first step in a process of building shareholder value."
Tribune shares have fallen fairly steadily since early 2004, when they often traded above $50. Like other newspaper chains, the company has suffered from investor concern about declining circulation and advertising volume amid a proliferation of competing media channels.
Such concern led the three largest shareholders of Knight Ridder to agitate for its sale, which is scheduled to be completed next month.
Tribune has been seen as better protected from takeover pressure than Knight Ridder because Tribune employees and a foundation controlled by company officials hold more than 20% of the its stock. The Chandlers' move, however, signals that Tribune might not be able to count on the 12% block that had been considered secure.
"What the Chandlers have done is cause people to think," said newspaper industry analyst Ed Atorino of brokerage Benchmark Co. "They are obviously not pleased with the game plan."