YOU ARE HERE: LAT HomeCollections

Tribune awaits bids as sector's woes mount

October 27, 2006|James Rainey and Thomas S. Mulligan | Times Staff Writers

Reports of declining revenues, shrinking circulation and further layoffs have spread new gloom over the newspaper industry in recent days and cast a pall over bidding for Tribune Co., which is expected to receive initial offers for the entire company from prospective buyers by today.

The Chicago-based media company, which owns newspapers including the Los Angeles Times and the Chicago Tribune, as well as two dozen TV stations, probably will draw several nonbinding proposals from a number of investment firms, according to several people following the process.

But in a mark of tepid enthusiasm, the offers are expected to come in only slightly above Thursday's closing price of $33.79, near a one-year high of $34.28 for the stock, which has been buoyed by speculation about a deal.

Industry observers expressed skepticism that the investment firms would follow through with formal bids. A lack of interest in acquiring the entire company could force Tribune to consider offers for particular assets such as the Chicago Cubs.

For The Record
Los Angeles Times Saturday October 28, 2006 Home Edition Main News Part A Page 2 National Desk 4 inches; 145 words Type of Material: Correction
Tribune Co.: A article in Friday's Business section about bidders for Tribune Co. contained an unattributed quote at the end. The quote is, "You wonder why a lot of private equity didn't show up for the Knight Ridder deal? The answer is that you worry about an exit [sale]. In other words, can you put enough lipstick on the pig to sell it?" The positioning of the quotation may make it appear to be from Scott N. Flanders, chief executive of Freedom Communications Inc. The quote is from an unnamed private equity executive considering a bid for Tribune. The article also said one potential bidder, Madison Dearborn Partners, included former Tribune CEO John W. Madigan. Madigan is taking a leave of absence from the private equity firm until Tribune's future ownership structure is resolved to avoid any appearance that he could be involved in talks.

"This is not a great time to sell newspaper properties," said veteran industry analyst John Morton. "Still, these are substantial cash cows, even if the trends are down. Then the question becomes -- what are you willing to pay for them?"

One sign of the shrinking value of newspapers: Tribune's current stock market value is about $8.1 billion, roughly what the company paid in 2000 for Times Mirror Co., which owned The Times and other newspapers such as Newsday and the Baltimore Sun.

Tribune announced a month ago that it would consider a breakup or outright sale in response to demands for increased value from the company's biggest shareholder, the California-based Chandler family. The company has said it hopes to conclude an examination of alternatives by the year's end.

But Tribune and other newspaper companies have been shaken by an onslaught of bad news from onetime industry powers. The Philadelphia Inquirer and its sister paper, the Philadelphia Daily News, reported such a severe drop in ad sales that cash flow could be reduced this year to $50 million, half of what it was two years ago. Faring even worse, New York Times Co.'s Boston Globe will probably lose money this year. Another round of circulation reports due Monday are expected to show further declines for the industry, with daily circulation falling about 2.5% and Sunday off about 3%, with large metropolitan dailies such as The Times expected to suffer some of the biggest drop-offs.

"I just think there is a sort of malaise over newspapers right now. That is the biggest concern," said an executive at the Blackstone Group, a large private equity firm that is not expected to bid. Among the firms considering a bid today are Carlyle Group, whose media holdings include a South Korean cable company and the parent of the Hollywood Reporter.

Madison Dearborn Partners, a Chicago-based firm that includes former Tribune Chief Executive John W. Madigan, is considering a joint bid with Providence Equity Partners and New York-based Apollo Management. Texas Pacific Group and Thomas H. Lee Partners form another interested group, and Bain Capital is said to be considering a solo offer.

Media companies have been in the background, although Gannett Inc., the nation's biggest newspaper operator, could still emerge as a suitor. A dearth of bidders from the industry could result in a less than robust price because they can more readily cut costs and justify paying more than investment firms.

"A decision to send a nonbinding letter of interest right now, with an indication of value, is an easy one," said an executive with one of the investment firms, who did not want to be named because he was not authorized to speak about the deal. "That way, you get to see a management presentation by Tribune and decide whether to go ahead."

One newspaper executive predicted that Tribune, fearing that rejecting all bids would trigger a precipitous drop in its stock, would accept a modest premium over its current market price. Others said that would not happen because independent directors overseeing the process could quickly turn to a second round and take offers for individual assets. Among Tribune's most prized properties: the Cubs and stakes in the Food Network and online job search site CareerBuilder.

Another possibility is that Tribune executives will seek partners of their own in a bid to take the bulk of the company private -- perhaps spinning off television stations in the process.

"At the end of the day, I still believe they go private," said one newspaper executive, who is close to Tribune management. "I think there is more likely a chance that one of the private equity firms, like Madison Dearborn, goes ahead if they are involved with management."

Los Angeles Times Articles