Tribune Co. to Explore Sale or Breakup of Firm

In a pivotal board meeting Thursday, Tribune Co. named a committee of directors to explore options that could include a breakup or outright sale of the venerable media company that owns the Los Angeles Times, the Chicago Tribune, KTLA-TV Channel 5 and other newspapers and television stations nationwide.

Tribune said the special panel of independent directors would study “alternatives for creating additional value for shareholders.”

Companies often use such language when they put themselves on the path toward a sale or a breakup. Tribune said it expected to complete the process by the end of this year.

Tribune bought Times Mirror Co., then the parent of The Times, in 2000 for about $8 billion, expecting that ownership of television stations and newspapers in the same cities would give the company an edge with advertisers and in pursuing the emerging Internet arena.

But those benefits did not materialize.

In a five-hour meeting on the 24th floor of Tribune Tower, a massive Gothic landmark in the heart of downtown Chicago, the board unanimously approved a restructuring of two partnerships at the center of a boardroom rift that broke out this summer involving the Chandler family, which controlled Times Mirror and is now Tribune’s largest shareholder bloc.

The family had been pushing to restructure the partnerships, which had been an obstacle to a sale or other transaction that might have lifted the company’s battered stock price.

The three Chandler representatives on the 11-member board abstained from voting. Under Thursday’s deal, the Chandler family will receive stock in Tribune that will raise its stake. Restructuring the partnerships will also cut the family’s potential tax burden from the sale of any assets.

Tribune Chairman and Chief Executive Dennis J. FitzSimons said in an interview Thursday night that the deal with the Chandlers could make it easier to sell the company or take it private, but he emphasized that the company had not committed to any alternative.

“It eliminates the impediments to all kinds of things,” said FitzSimons, who previously has opposed pursuing such radical strategies as a sale of the company or its largest property, The Times.

The special committee is made up of seven independent board members, including Pasadena resident Enrique Hernandez Jr., who is chairman and CEO of Inter-Con Security Systems Inc. Neither FitzSimons nor the three representatives of the Chandler family are part of the committee.

Tribune shares rose $1.36 to $32.05, lifting the company’s market value to $7.9 billion, before the news was announced after the stock market closed. Analysts have estimated that Tribune’s assets could be worth $40 to $45 a share.

Like other old-line media companies, Tribune has seen advertising revenue for its newspapers and TV stations shrink with the emergence of the Internet as a powerful draw for consumers. The Times and other major newspapers have suffered circulation declines with shifting demographics and competition from digital media.

A resulting slump in Tribune’s stock -- it has lost almost half its value in the six years since the Times Mirror acquisition -- has led Wall Street to clamor for action. It was similar pressure from stockholders that spurred the $4.5-billion sale this year of Knight Ridder Inc., then the nation’s second-largest newspaper chain, to Sacramento-based McClatchy Co.

Despite industry woes, The Times -- the nation’s fourth-largest newspaper by circulation -- boasts a profit margin of 20% and is expected to produce pretax profit of a quarter-billion dollars this year.

The Times accounted for nearly 20% of Tribune’s 2005 revenue of $5.6 billion and roughly the same percentage of the company’s operating profit of $1.15 billion, according to executives at the paper who did not want to be named because those figures are not public.

Tribune also owns the Chicago Cubs and a host of websites including interests in CareerBuilder.com and Cars.com.

Tribune’s struggles provide the latest evidence that the big media mergers of the late 1990s and the early part of this decade may have been based on a flawed principle: that “synergies” among print, broadcast and Internet properties would supercharge their aggregate value.

America Online Inc.’s $99-billion acquisition of Time Warner Inc. was widely seen as the biggest bust, but Viacom Inc. also backpedaled recently, spinning off CBS Corp. from its movie, cable-TV and digital properties.

The dissatisfaction with Tribune crystallized in June, when the Chandlers publicly lambasted its management and demanded that it spin off the company’s 25 TV stations, sell some of its 11 newspapers or auction off the entire company.

Once the Chandlers went public, potential buyers for The Times quickly emerged from the city’s billionaire class, including music mogul David Geffen, philanthropist Eli Broad and supermarket magnate Ronald Burkle.

Private investment companies also began considering how Tribune might be taken private in a leveraged buyout, a transaction in which the bulk of the purchase price is financed with bank borrowings. Such buyers generally don’t invest for the long term. Rather, they usually cut costs and resell the asset in five to seven years.

Major institutional investors, such as Chicago-based Ariel Capital Management, which owns 6% of Tribune shares, also have been weighing in publicly but less confrontationally than the Chandlers.

“Ariel has continuously expressed confidence that the strong board and management of Tribune would take steps to realize the intrinsic value of the company,” Ariel’s vice chairman, Charles K. Bobrinskoy, said in an interview Thursday night. “Today’s actions made clear that this confidence is being rewarded.”

Outside experts were divided on whether Thursday’s action would inevitably lead to something as dramatic as a breakup or a sale of The Times.

Paul Ginocchio, a publishing and advertising analyst for Deutsche Bank, said the realignment of the partnerships cleared a path for dramatic changes.

“Why wouldn’t you get rid of the L.A. Times, your squeakiest wheel? Or most of the TV assets could be spun off or sold,” Ginocchio said. “Then Tribune is in a position to go private, if that is what they want to do.”

But independent newspaper analyst John Morton noted that the seven board members on the special committee -- the full board, minus FitzSimons and the three Chandler directors -- have supported management, which has been reluctant to sell The Times.

“I find it unlikely they would want to dispose of the Los Angeles Times, which is a major revenue and profit producer for them,” Morton said. “It would seem irrational. On the other hand, there are other forces at work, namely the Chandler family.”

In June, Tribune announced that three Chandler representatives on its board opposed a $2-billion stock buyback, which FitzSimons had introduced as part of a “performance improvement plan” that he said would also include $500 million in asset sales and $200 million in cost cuts.

The company has already sold three television stations and 2.8 million shares of Time Warner stock to raise much of the $500 million. But proposed staff reductions have caused a backlash at The Times, where Editor Dean Baquet said layoffs threatened to damage the paper’s quality.

The disagreement between the Los Angeles paper and its Chicago parent came to a head in late August, when Baquet and Times Publisher Jeffrey M. Johnson declined to present Tribune Publishing President Scott C. Smith with a list of cost reductions he had demanded. The Times executives went public with the dispute last week as 20 Los Angeles civic leaders were voicing their own displeasure over newsroom cuts in a letter to Tribune management.

FitzSimons said that despite the friction between the Chandlers and Tribune management, Thursday’s board meeting was “positive and cordial,” with smiles and handshakes at the conclusion. But there was no assurance that the agreement would change Tribune’s plan to cut expenses, including jobs at The Times and other holdings.

The restructuring of the Chandler-Tribune partnerships will raise the Chandlers’ Tribune stake to 21% from 16%. However, the family will not enjoy the full voting power of its new shares for a year.

The two partnerships held assets valued at $3.55 billion at the end of 2005, including Tribune shares, real estate, and a wide range of equity investments, some of them in a speculative venture capital portfolio.

Under the agreement, Tribune will receive three-quarters of the Tribune shares in the partnerships, which are worth $1.27 billion at Thursday’s closing price. The company will also receive preferred shares valued at about $500 million. The Chandler family trusts will receive the remaining common shares worth more than $378 million.

The partnerships will retain assets that were valued at $1.45 billion at the end of 2005.

These include Tribune properties valued on the books at $225 million but reportedly valued by a Tribune appraisal at $325 million and potentially worth even more. These properties include the former Times Mirror Square, the downtown Los Angeles headquarters of The Times, as well as newspaper plants in Baltimore and on New York’s Long Island. The partnerships also hold other equities valued at year-end 2005 at $633.5 million and real estate investment trusts worth $593.3 million.

Moreover, Tribune will have an option to acquire the newspapers’ real estate in January 2008 for $175 million, which may be worth as much as $225 million.

Tribune said that the restructuring would produce a one-time taxable gain of $45 million.

thomas.mulligan@latimes.com

james.rainey@latimes.com

michael.hiltzik@latimes.com

Mulligan reported from Chicago, Rainey and Hiltzik from Los Angeles.