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California and the West

Tribune Board Conflict Builds

Independent directors denounce the Chandler family's attack on the firm's buyback plan.

June 16, 2006|Josh Friedman | Times Staff Writer

The sniping over the future of Tribune Co. escalated Thursday as the media conglomerate's independent directors responded to this week's scathing attack on the company by the former owners of the Los Angeles Times.

The directors denounced as "untrue" and "unfounded" the Chandler family's allegations -- leveled in a regulatory filing Wednesday -- that Tribune's board acted rashly in launching a $2-billion stock buyback now underway.

"We completely reject your assertion that the action of Tribune's board in authorizing the tender offer was 'hasty and ill-informed,' " the directors said in a letter addressed to the two Chandler trusts that control 12% of the company's stock and thus are the company's second-biggest shareholders.

Tribune's debt, meanwhile, was downgraded to junk status Thursday by Moody's Investors Service, which cited concerns about the additional leverage the Chicago company would be taking on to finance the repurchase of as much as 25% of its stock.

Moody's said Tribune's plan to divest $500 million of assets and achieve $200 million in cost savings this year did not fully ease the bond rating firm's concerns.

Yet the junk status of the company's bonds didn't hold back equity investors. Tribune's stock rallied 57 cents to close at $32.51 after a Wall Street analyst upgraded the shares because the boardroom squabble, she said, could force an asset sale that would unlock "significant" value.

It is the first time since Tribune announced the buyback May 30 that shares have closed above $32.50 -- the maximum amount the company has offered to pay.

If Tribune stock stays elevated over the next 10 days as investors consider tendering their shares, the company's efforts to buy back 53 million shares would be hampered. The tender, designed to return money to shareholders and lift the stock, expires June 26.

In their latest letter, Tribune's independent directors said the board had considered "a broad range of strategic options" over several months.

They also said the board had heard extensive presentations from management and consulted with advisors from Merrill Lynch & Co. and Citigroup before choosing a course "in the interests of all shareholders."

In a statement late Thursday, the Chandler family of Los Angeles reiterated its rebuke of the company's efforts to consolidate ownership through a buyback instead of pursuing a more dramatic restructuring. The Chandlers, who owned The Times for more than a century before selling the paper's then-parent, Times Mirror Co., to Tribune in 2000, favor a spinoff or sale of Tribune's broadcasting division.

"The company has many valuable assets," said Chandler family spokesman Steve Silva. "We believe there is a better strategic plan for the company than the same one that has resulted in a 40% decline in the stock price," he said, referring to Tribune's drop since early 2004 amid a broad slump in media stocks.

The newspaper chain, ranked third in circulation in the U.S., owns 11 newspapers including the Los Angeles Times, the Chicago Tribune, Newsday and the Baltimore Sun. Its 26 television stations include KTLA-TV Channel 5. It also owns the Chicago Cubs baseball team.

Credit Suisse First Boston analyst Debra Schwartz hiked her rating on Tribune stock, saying a breakup or outright sale could boost the shares to the $40-to-$45 range.

The stock has surged 17% since the company announced the buyback. The rally strengthened last week when the Chandlers announced their opposition to the buyback, fanning further deal speculation.

Despite the dissension, Tribune has said it would press ahead with its "Dutch auction" tender offer. Tribune would buy as many shares as it could, or it might extend the offer period and raise the price it would pay to keep the tender alive, analysts said.

However, the major institutions that control large blocks of shares typically wait until close to the deadline before deciding whether to tender their stock, so this week's rally could prove meaningless by the time the offer expires June 26.

As part of the sale of Times Mirror to Tribune, the Chandlers wound up with three seats on the 11-member board. The three Chandler representatives were the only board members to vote against the refinancing plan.

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