Tribune Co. said Monday that it would spend as much as $2.4 billion to buy back up to 25% of its shares, a move designed to reverse a two-year slide in the media company's stock price and ward off calls for more drastic action.
Chicago-based Tribune also said it planned to sell at least $500 million in assets and to cut $200 million in annual operating costs, partly through layoffs. The company owns 11 daily newspapers -- including the Los Angeles Times and Chicago Tribune -- and 26 TV stations including KTLA.
One analyst described the moves as a "preemptive strike" against any demands from unhappy shareholders to break up the company or sell it. Newspaper stocks have suffered in recent years as readers and advertisers have defected to the Internet. Pressure from the three largest shareholders of Knight Ridder Inc. forced the planned sale of that company to McClatchy Co. this year.
"We think it's a step in the right direction, an endorsement of the company and a statement by management that they really believe in the publishing, media and broadcast businesses," said Barry L. Lucas, an analyst at Gabelli & Co., whose parent firm owned 1.6% of Tribune's stock at the end of April.
Debt-rating services reacted negatively to the plan and slashed the company's rating several notches, bringing it to the brink of junk status. Tribune said it would borrow as much as $3.4 billion to pay for the buyback and to refinance some of its existing debt.
Tribune Chief Executive Dennis FitzSimons defended the repurchase program and said repaying some of the new debt would be a top priority.
"We believe that Tribune's current stock price does not reflect the value of the company or the potential we have for creating shareholder value," he told investors during a conference call. "We're optimistic about the prospect for improved performance at our media businesses."
Tribune shares jumped $2.01, or 7.2%, to $29.90, on a day the broader stock market fell sharply. In early 2004, Tribune traded above $52.
To help pay down the new debt, FitzSimons said he would look to sell "non-core" businesses outside of the company's media holdings in Los Angeles, New York and Chicago. He said Tribune would keep the Chicago Cubs baseball team, which some investors have said should be sold. Analysts said that television stations in smaller markets were likely targets for sale.
Also Monday, Tribune said it had settled a 2-year-old Securities and Exchange Commission inquir into circulation reporting at its papers Hoy and Newsday. Finding that Tribune lacked appropriate internal controls, the SEC issued a "cease and desist" order against future cheating while noting that the company had reformed its practices.
Nine former Newsday and Hoy employees and contractors have pleaded guilty in the scheme, which inflated Newsday's daily circulation by as much as 27% and Hoy's by as much as 81%. Circulation figures help determine what newspapers charge advertisers.
Like Knight Ridder, Tribune has only one class of stock outstanding, leaving it susceptible to a takeover or shareholder initiative. Family-controlled companies such as McClatchy, New York Times Co. and Washington Post Co. are better equipped to fend off such assaults.
Tribune, however, has been seen as more insulated than Knight Ridder because major blocs of stock are owned by a charitable foundation closely tied to the company, by Tribune employees and by the Chandler family, which became a major holder after it sold The Times and other papers to Tribune.
The McCormick Tribune Foundation and a related charity, recently faulted by some experts for having the vast majority of their assets in Tribune stock, will sell 10 million shares in the repurchase, but end up with the same 14% stake in the company it has now, because the total number of shares outstanding also will fall.
In all, Tribune plans to repurchase as many as 75 million shares -- 53 million through a modified Dutch auction, 10 million from the foundation and the rest in the open market.
The company is offering $28 to $32.50 a share through the auction, in which shareholders will name a price in that range and Tribune will pay the lowest price it can to get the number of shares it wants.
FitzSimons said the Chandlers hadn't said whether they intended to sell some of their stake, and family representatives declined to comment.