Geffen may still have a chance

The entertainment mogul's $2-billion offer for the newspaper was rejected last year by its parent, Chicago-based Tribune Co.

Tribune, which was considering options including a sale of assets, said at the time that it intended to keep itself intact rather than sell off pieces.

But the company's deal this week with billionaire entrepreneur Sam Zell to go private may well have changed the equation. Although Zell has also said that he intends to keep the company whole, the heavy debt load that Tribune would assume to complete the deal might force it to look for ways to raise large chunks of capital in a hurry.

The opportunities still exist to spin off The Times from Tribune in a tax-free transaction, according to Robert Willens, a tax expert and managing director at Lehman Bros. who has followed the Tribune deal closely. The ideal format, he said, would be a "sponsored spinoff," an increasingly popular method for corporations to divest subsidiaries without incurring large tax bills.

Geffen said Monday that he would still like to acquire The Times. "I think there is an opportunity for Tribune Co. of Chicago to maximize shareholder value" by selling him the paper, he said after the Zell deal was announced.

Geffen has said that he hopes to meet with Zell at some point in the future. "I like Sam Zell," he told The Times on Monday. "I wish him well with this new enterprise."

A sponsored spinoff of The Times might allow Tribune to slash the amount of money it would need to borrow to take the company private under a Zell deal.

The spinoff might happen in several stages, Willens said. First, before a Zell deal was completed, Tribune would transfer The Times to a new company, which would then borrow, say, $1 billion, against the newspaper's assets. Tribune could use those proceeds to offset its own debt or future borrowing. In the next step, a new partner -- in this example, Geffen -- would buy up to 49.9% of the Times company. The purchase would have to be for a stake of less than 50% to keep the transaction tax free. Tribune would distribute the remaining 50.1% of the stock in the new company to current shareholders on a tax-free basis.

Geffen's purchase price would pay off the $1 billion in borrowing, with any excess going to Tribune. After an interval of as little as a year or two, Geffen could buy the rest of the Times shares, emerging as the newspaper's 100% owner.