Tribune execs, family said to plan rival bids

Tribune Co. of Chicago and its largest shareholder, California’s Chandler family, had hoped to find a way out of their unhappy union when the media company went on the auction block this fall.

But nearly three months after the Chandlers forced Tribune to explore a possible sale or breakup, several prospective buyers have come forward -- so far only to express preliminary interest. None has made a binding offer for the company that owns the Los Angeles Times, KTLA-TV Channel 5 and the Chicago Cubs baseball team.

Now the Chandlers and Tribune’s management appear to be preparing to fill the void themselves by considering making competing bids for all or parts of the company that they have held in an uneasy alliance for six years.

The Chandlers have been in discussions with billionaire Ron Burkle’s investment firm, Yucaipa Cos., about making a joint offer for some or all of Tribune’s assets, said two people who are familiar with their plans. The family already owns 20% of Tribune’s stock.

Meanwhile, Tribune executives, led by Chief Executive Dennis J. FitzSimons, are expected to enter a bid of their own in alliance with a consortium of three private investment firms, one of the group’s advisors said.

The management consortium includes Providence Equity Partners of Rhode Island, Apollo Management of New York and Madison Dearborn Partners, a Chicago investment firm that is said to have particular interest in owning part of the hometown media giant.

The entire bidding process is cloaked in secrecy, producing few public statements. Sources familiar with the potential bids agreed to discuss them on condition of anonymity, saying they had not been authorized to speak publicly about a deal. They did not disclose details, including how much the two groups might offer for the company, which is worth $7.58 billion based on Friday’s closing stock price of $31.75.

Tribune owns 11 daily newspapers, two dozen television stations and parts of cable TV’s Food Network and the Internet job site CareerBuilder.

Alan Mutter, a San Francisco analyst and investor who focuses on media companies, called talk of Tribune’s future “very speculative and fluid.”

A showdown between the Chandlers and Tribune management made sense, he said, given the tepid response of other potential buyers.

“In the absence of a successful auction, management could move forward with a bid to take the company private,” Mutter said. “And in light of that, it appears that the Chandlers and their financial partners are moving to create an opposing offer. If nothing else, that will assure that management comes in at the highest possible price for shareholders.”

Competing bids would pit the family that founded the Los Angeles Times 125 years ago against FitzSimons, the one-time television advertising executive whom the clan has lambasted for his leadership.

During the summer, family directors on the Tribune board wrote a letter complaining about the 40% decline in Tribune stock over two years. They blamed management for failing to produce the “synergy” that was supposed to be created in Tribune’s 2000 buyout of Chandler-controlled Times Mirror Co.

Tribune announced in September that a special committee of its board of directors would resolve the ownership issue by year’s end. Newspaper giant Gannett Co. and several private investment firms made initial nonbinding bids, but they have not followed up with formal offers for the company.

Several industry observers have said they doubt that many bids will emerge because potential buyers have trouble seeing how they would enhance the value of a business centered on television and newspapers -- which are losing audience and advertisers to the Internet.

The lukewarm response forced Tribune to announce late last month that it would extend the period for offers into the first quarter of 2007. There is no deadline, but people watching the process say they expect more bidding activity within the next few weeks.

Tribune has told potential bidders that it would prefer an offer for the whole company or for its newspaper or broadcast divisions in their entirety. If no adequate bid emerges, the company has said it would then field offers for individual properties.

Financiers and investment groups in several cities have said they would be interested in buying the local Tribune paper.

Entertainment mogul David Geffen made a $2-billion bid for the Los Angeles Times last month but was rebuffed by Tribune executives who said the offer was premature, a person familiar with the matter said.

A top Tribune manager and a newspaper executive familiar with the company both said they expect FitzSimons to lead a leveraged buyout offer for the entire company, perhaps as early as January.

The newspaper executive, who does not work for Tribune, said he spoke with Tribune’s chief executive several weeks ago and “got the impression that Dennis really believes they will do a buyout. I don’t sense that he or his team are packing up their bags to go anywhere.”

One member of the extended Chandler clan, which numbers about 170, said several weeks ago that the family had been debating whether to enter the bidding. Some of the Chandlers have argued that would be the best way to maximize the value of family-operated trusts that hold roughly $1.5 billion in Tribune stock.

A Chandler family spokesman declined to comment Sunday. Tribune’s spokesman also declined to discuss the matter.

It remains unclear how the Chandlers and Burkle’s Los Angeles-based Yucaipa would proceed.

Burkle made an estimated $2.5-billion fortune, according to Forbes magazine, by buying and selling supermarket chains. Although he has sometimes shunned the limelight, his profile has been raised by sizable donations to Democratic Party politicians and his friendship with former President Bill Clinton.

Burkle previously made a preliminary bid for Tribune with Eli Broad, the billionaire philanthropist. Both men have said they would like to restore the Los Angeles Times to local ownership.

Neither of the magnates could be reached for comment, leaving open the question of whether Broad would be included in a new partnership.

The Chandlers, sensitive to the enormous tax bill a sale would bring, have been mulling over alternatives. In one scenario, the family would exchange its Tribune stock for direct ownership of some of the company’s assets.

The exchange could be completed tax-free if the Chandlers maintained a 51% or greater interest in the business or businesses they received in the swap. The remaining 49% would go to another investor, such as Burkle.

That approach would be “the best tax solution at the moment for anyone who wants to break off individual assets like the L.A. Times,” said an advisor who has consulted on the deal but had not been authorized to talk publicly about the discussions.

“If that is the only way to get it done, then maybe it works,” the advisor added. “But some people would prefer to control their own destiny” rather than partner with the Chandlers.

Some family members have said they would prefer to make a clean break with The Times, indeed the entire newspaper industry, whose prospects remain cloudy.

The Times is expected to produce pretax cash flow of about $238 million this year. But 20% profit margins that have been common in the past are expected to decline, perhaps precipitously, as advertisers flee to the Internet and other alternatives.

The Chandlers, whose stock is held in a trust, are said to prefer an outright sale that would hike the value of their Tribune shares. Those familiar with their view said they have considered entering the bidding only as a fallback position.

FitzSimons and other Tribune managers have never publicly disavowed their belief that the company can flourish by operating strong newspapers, television properties and Internet sites -- particularly those based in Los Angeles, Chicago and New York.

Madison Dearborn, one of the three investment firms discussing joining the management offer, counts former Tribune CEO John W. Madigan among its partners.

Madigan, who orchestrated Tribune’s $8-billion acquisition of Times Mirror in 2000, took a leave of absence from the investment firm to remove any appearance of a conflict because he sits on the board of the McCormick Tribune Foundation, which owns 12% of the company.

Some industry observers have suggested that management might try to spin off the company’s television stations to help finance the deal, but the advisor said he thought the managers’ group would bid for the entire company.

“I am not sure that management would want to be just in publishing and not own the broadcasting too,” the advisor said. “The print side is not a growth business, on its own, these days.”

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james.rainey@latimes.com

Times staff writer Thomas S. Mulligan contributed to this report.