Many who follow the industry compared Tribune's situation to that of Knight Ridder Inc. when it went on the block this year. Then the second-largest newspaper chain by circulation, the San Jose-based company was sold in March to McClatchy Co. of Sacramento at a modest 7% premium over the company's share price. The selling price was 25% above where the stock was trading when disgruntled shareholders put it in play in late 2005.
Many private equity firms had looked at Knight Ridder, but only one consortium put forth a bid, and it was too low to win. McClatchy's stock has sunk 18% since it acquired Knight Ridder.
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.
"If you didn't like Knight Ridder, what makes you think Tribune would be any better?" asked a major newspaper operator who asked not to be named. "Knight Ridder had diversified markets all over the country, with small- and medium-sized newspapers that weren't getting hit as hard as the major metros Tribune relies on, and [Knight Ridder] was not encumbered by a group of independent TV stations that are getting hammered."
The Chandler family, holders of about 19% of Tribune's stock, threw the company's future into question in June with a sharply worded letter that questioned management's strategy, including a $2-billion stock buyback. The family cited analysts who calculated the company's value at $42 to $46 a share. The family could demand an auction of individual assets to get closer to that target, industry observers said. A family spokesman declined to comment Thursday.
Analyst Morton said some optimism was in order. Though newspaper profit margins have fallen from an average of 22% four years ago, they are, at 18% in the first half of 2006, "still healthy, by almost any standard."
Advocates for the industry note that the businesses not only throw off large amounts of cash but also reach larger audiences than ever when their print and Internet audiences are combined. The problem has been that Web advertising, while growing rapidly, still accounts for only about 5% of overall revenues in the industry.
"Is this going to be a long-term situation and always negative for newspapers? It could be. But more likely, it's not and will turn," Morton said.
Scott N. Flanders, chief executive of privately held Freedom Communications Inc., parent of the Orange County Register, said "it would make sense for Tribune's papers to be taken private during the transition from print to the digital world. Blackstone and Providence Equity bought a stake in Freedom in 2003.
Private equity firms generally prefer flabby companies. But Tribune is considered a strong cost cutter and has trimmed 2,500 jobs at The Times.
"You wonder why a lot of private equity didn't show up for the Knight Ridder deal?" he asked. "The answer is that you worry about an exit [sale]. In other words, can you put enough lipstick on the pig to sell it?"