Talk of Tribune Spinoff Raises Fears and Doubts

Tribune Co. Chief Executive Dennis FitzSimons spent part of his day in Los Angeles this week soothing fears.

He wasn’t holding hands at The Times, Tribune’s largest publishing enterprise, where the recent breakup of Knight Ridder Inc. has raised concerns about the fate of big-city newspapers.

Instead, FitzSimons was at Tribune’s local television station, KTLA-TV Channel 5, fielding questions from employees anxious about how reported conflicts between management and one of the company’s biggest shareholder groups might affect the broadcast division.

The hourlong “town meeting” Wednesday was the kind that FitzSimons regularly holds at Tribune properties. The timing coincided with fresh reports -- including a Securities and Exchange Commission filing by Tribune -- of a possible corporate restructuring that might involve Tribune’s 26 TV stations, including KTLA.

In a proxy statement filed in conjunction with a $2-billion stock buyback announced last month, Chicago-based Tribune disclosed that it was considering options regarding its broadcast division, including the sale of stations, joint ventures with third parties, the sale of a stake in the division, and a spinoff to Tribune shareholders.

“There can be no assurance,” Tribune cautioned, “that any transaction will result from the company’s evaluation of such alternatives from time to time.”

FitzSimons declined to comment through a spokesman, who cited the quiet period required while the stock tender offer was pending.

But the boardroom rift, first reported in the Wall Street Journal, drove up the price of Tribune shares this week as speculation mounted that dissident directors were disenchanted with management and possibly interested in dismantling the company.

Three directors representing the Chandler family, which owns 12% of Tribune’s stock, voted against the stock buyback. The Chandlers’ holdings date to the sale to Tribune in 2000 of their controlling interest in Times Mirror Corp., the parent company of The Times.

At the KTLA forum, FitzSimons downplayed the idea of a schism, saying that the Chandlers’ concerns mainly related to tax problems that the buyback might pose for them, said one person at the meeting, who asked not to be named because the meeting was private and for employees only.

Asked about the recent agreement to sell Tribune’s Atlanta TV station, FitzSimons told employees that stations in major cities such as Los Angeles were central to the company’s broadcast strategy, but Atlanta was not, the person said.

Wall Street analysts question whether a spinoff could lift Tribune’s sagging stock price. The strategy, although popular of late, has had a mixed record.

The attraction of spinoffs is that they provide shareholders with “pure plays,” or holdings segregated by sector, analyst Laura Martin of Soleil/Fulcrum Partners said. In Tribune’s case, its newspapers and TV holdings would have their own stocks.

The theory is that such pure plays are easier to value and to sell when the time comes.

Ariel Capital, owner of more than 10 million Tribune shares, believes a spinoff could help Tribune realize its potential value of $44 to $46 per share, said Charles Bobrinskoy, vice chairman of the Chicago-based investment firm.

Tribune shares closed Friday up 38 cents at $31.96, the highest price since November. Shares have climbed despite a sputtering stock market, helped by the buyback announcement and speculation about a sale or breakup of the company.

One large investor who owns Tribune shares and spoke on condition of anonymity says as much as $2 billion of Tribune’s value, or more than $6 a share, is disregarded in a conventional cash-flow analysis. The Chicago Cubs, for example, are a break-even operation but could be sold for $600 million or more.

By some Wall Street estimates, Tribune’s one-third stake in online job-search business CareerBuilder.com could be worth $350 million, the same value as its one-third stake in the Food Network cable channel.

If Tribune’s TV properties could be sold at the upper end of valuations for recent sales, the division could be worth as much as $6 billion, or $20 a share, experts said.

Yet spinoffs do not always unlock value. Since Viacom Inc. spun off CBS in January, the broadcast network’s stock has been flat, while the remaining stock, made up mostly of cable assets including MTV, has fallen about 6%.

Clear Channel Communications Inc. spun off its concert division in December. The new concert company’s shares have leaped 81%, but the much larger radio chain’s stock has dropped 2% this year.

It’s too early to tell what will happen with Liberty Media Corp., which just a month ago created two stocks that track the performance of the company’s assets. Since the transaction, shares of Liberty Interactive, which includes QVC and online shopping assets, are down about 15%, while those of Liberty Capital, which includes entertainment properties, have jumped 15%.

Such financial engineering, analyst say, will not cure fundamental problems facing both the newspaper and broadcasting businesses.

“The asset mix is not what hurt these companies; it’s the emergence of new competitors, such as Internet companies and satellite radio,” analyst Frederick Moran of Stanford Group said.

Leo J. Hindery Jr., managing partner of InterMedia Partners, a New York-based private equity firm, was even more dismissive.

“The market doesn’t like my papers or my TV stations,” he said of Tribune, “so my solution is to cut them in two?”

Hindery, a veteran media executive, asked, “How could they think the market is so unsophisticated that it can’t calculate the value whether they’re together or apart?”

Times staff writers Meg James and Joe Menn contributed to this report

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Mixed media

Publishing provides the lion’s share of Tribune’s operating revenue, but broadcasting and entertainment have a larger profit margin.

(In billions)

Publishing

2005 operating revenue: $4.1

2005 operating profit: $0.8

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Broadcast and entertainment

2005 operating revenue: $1.5

2005 operating profit: $0.4

Source: Company reports