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Tribune's Future Not Easy to Read

As The Times' owner weighs action to increase share value, analysts say its broadcast holdings or smaller papers may end up on the block.

September 23, 2006|James Rainey and Meg James | Times Staff Writers

The revelation that the leaders of Tribune Co. might sell or break up the media company puts nationally known properties such as the Chicago Cubs and the Los Angeles Times up for grabs. But a variety of observers said Friday that Tribune is more likely to sell its television stations or smaller newspapers than its marquee holdings.

Chief Executive Dennis J. FitzSimons and his management team will explore various options for increasing the Chicago company's stock price. But a committee of seven independent directors named Thursday will have the final say on the future of the company, said a person who was familiar with the board's deliberations.

"Dennis said he believes in his strategy and that it would have positive outcomes," said the source, who requested anonymity. "But we have not seen that financial performance, and he hasn't delivered what he said. Now the committee is going to have to look at other things to do."

The special committee plans to hire an investment banking firm as an advisor to complete its review by year's end.

The prospect of change sent Tribune shares soaring $1.94 Friday, or 6.1%, to $33.99, the highest price in nearly a year. Some analysts and the largest shareholder, the California-based Chandler family, have projected that the company would be worth substantially more if some of its 12 newspapers or 25 television stations were sold piecemeal or spun off to shareholders -- perhaps lifting the shares into the $40 range.

In July, one Wall Street firm estimated the company's breakup value at about $10 billion -- more than its $8.4-billion stock market value.

But many other observers pointed to myriad problems confronting the company, including a debt load that now stands at $4.6 billion. Tribune's faltering bond ratings fell again Friday, when two credit-rating firms, Standard & Poor's and Fitch Ratings, downgraded the company's debt to junk status.

More fundamentally, television stations and newspapers are seeing their audiences and advertising revenues siphoned off by new media, especially the Internet. Tribune and other newspaper companies have struggled with sagging sales in the last two years.

Citigroup analyst William Bird, in a report published Friday, speculated that there was only a slight chance Tribune would be sold to another media company or taken private by an investor group. He said the company's high debt level, lack of growth and high concentration of stations in the unproven CW network "are factors not likely to draw high private-equity interest."

Much more likely, in Bird's view, is a spinoff of the broadcast division. He said the value of the two pieces would trade at a total of $34. That's barely above Tribune's closing share price Friday, although a split-up probably would produce greater value in the long run, he said.

Despite skepticism from the financial markets and many Tribune employees, FitzSimons has given no indication that he intends to drop the "synergy" strategy launched when the company bought Times Mirror Co., the former parent of The Times, which was controlled by the Chandler family.

Since the 2000 acquisition, Tribune has banked on the largely unfulfilled promise that cross-ownership of newspapers and television outlets -- particularly in Los Angeles, Chicago and New York -- would drive up ad sales.

Even after this week's action seemed to put the entire company in play, FitzSimons told the Wall Street Journal: "The L.A. Times is part of Tribune and not for sale."

Veteran newspaper analyst John Morton said the company showed no signs of changing its stand. "To sell one of their major newspapers would negate their whole operating philosophy of the last six years."

The appeal of selling the company's biggest papers, including the Los Angeles Times, could also be limited by the substantial tax bill the company would face, according to one newspaper executive. And Tribune probably would not readily relinquish the paper that produces one-fifth of its revenue and profit.

Interest in buying The Times from three wealthy Angelenos may not overcome those barriers.

A more probable scenario would be the sale of three smaller papers in Connecticut -- the Hartford Courant, the Stamford Advocate and Greenwich Time -- and the Allentown (Pa.) Morning Call, Morton said.

The most likely buyers of such properties in recent years have been companies already operating in the region, allowing for combined editorial, advertising and even printing operations.

That could mean the Newhouse family's Advance Publications, owner of a newspaper in Easton, Pa., might take an interest in the Morning Call. A particularly low-cost operator, the Journal-Register Co., already owns several papers in Connecticut and could bid on those in that state, Morton added.

The market for television stations faces its own challenges. Besides similar tax issues, there is a flat advertising market that is heading into a nonelection year, lacking lucrative political advertising.

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