Timing may hurt auction of Tribune

Timing seems to be a factor working against Tribune Co. as the media company that owns the Los Angeles Times attempts to auction itself off.

For the company’s broadcast division, the auction comes too late to catch the hot market for TV stations that existed a couple of years ago and perhaps too early for an advertising bump that analysts project running up to the 2008 presidential election.

But the two main proposals on the table -- and another for the broadcast unit alone -- value the TV group at a modest premium, if any at all.

A bid for the Chicago-based company from its largest shareholder group, the Chandler family of Los Angeles, was extended by mutual agreement after expiring Jan. 31, said a person familiar with the negotiations who asked not to be named because the talks were confidential. The same thing happened with an offer from Los Angeles billionaires Eli Broad and Ron Burkle that had expired a week earlier.

Tribune has kept a dialogue going with the bidders, which also include private equity firm Carlyle Group, while trying to flush out additional offers. This week, news surfaced that yet another billionaire, Chicago real estate magnate Sam Zell, had approached Tribune with an offer that could involve his buying a stake in the company in a restructuring.

The seven-member special committee of Tribune’s board that has been assigned to oversee the auction has held several weekend meetings with management to discuss the bids. It will reconvene next week.

Tribune Chairman and Chief Executive Dennis J. FitzSimons reiterated Thursday that the company still intended to complete its review by March 31.

“The process has been rigorous, thorough, and as you might imagine, we look forward to its completion so we can spend 100% of our time focused on the future,” he said during a conference call with analysts to report Tribune’s fourth-quarter earnings.

Buoyed by tight cost controls and some one-time gains, Tribune reported profit that beat Wall Street’s consensus estimates. Still, the company’s shares slipped 3 cents to $30.92. The shares have been trading below the $31.70-a-share value that the Chandlers place on their bid and the $34 that Broad and Burkle have said their offer is worth.

Tribune’s fourth-quarter net income leaped 78% to $239.1 million, or 99 cents a share, from $132.3 million, or 43 cents, a year earlier. Excluding gains from investments and other one-time items, net income was 68 cents a share. On that basis, analysts had expected 61 cents, according to a survey by Thomson Financial.

Although revenue rose 5.4% to $1.47 billion, up from $1.39 billion a year earlier, Tribune said the gain was because of an extra week in the 2006 fourth quarter.

Tribune’s 11 newspapers and 23 TV stations, which include KTLA-TV Channel 5, have suffered declines in audience and advertising revenue in recent years. But the stations, which account for about a quarter of Tribune’s $5.5 billion in annual revenue, could see a rebound.

With a presidential election in 2008, a wide field of candidates and no incumbent, some analysts believe that a revival in broadcast advertising could begin this year. A further spur to ad spending -- although more short-lived -- will be the 2008 Summer Olympics in Beijing.

“You assume the bidders built that into their outlook, but a really strong political year could help,” said Dave Novosel, a bond analyst for Gimme Credit in Chicago.

Washington-based Carlyle Group has bid $4.7 billion, including the assumption of debt, for Tribune’s broadcasting division, according to a person familiar with the offer who asked not to be named because of the confidentiality of the negotiations.

Carlyle believes that it could manage the stations better than Tribune, saying the company has not taken advantage of its stations in Chicago, New York and Los Angeles to launch afternoon syndicated programs such as “The Oprah Winfrey Show,” said the person. The division also includes the Chicago Cubs baseball team and Tribune’s 31% stake in cable TV’s Food Network, which analysts have valued as high as $1 billion.

In January, FitzSimons told a group of his broadcasting managers that the Carlyle Group proposal could be a good outcome for the division, according to a person who participated in the discussion but declined to be identified because it was private.

The Chandlers’ offer would involve spinning off the broadcasting group to Tribune’s non-Chandler shareholders at an estimated value, including debt, of $4.2 billion. The Food Network stake would stay with the TV stations, but the Cubs would go to the publishing unit retained by the Chandlers.

News Corp. Chairman Rupert Murdoch, who has joined the Chandlers’ bid, said Thursday at a media conference in New York of the offer: “I don’t really believe it’s going to happen.”

Neither bid is generous, according to analysts. Alexia Quadrani of Bear Stearns said that TV stations recently had been sold for 12 to 13.5 times their annual earnings before interest, taxes and depreciation. Tribune’s stations probably would fall at the lower end of that range because 15 of them are allied with the fledgling CW Network and two others are affiliated with Fox’s even lower profile My Network TV group. Quadrani said that at 12 times estimated 2007 earnings of $366 million before certain items, the division would be valued at $4.4 billion.

A former broadcast executive familiar with Tribune’s properties said the company controlled costs well but tended to be too cautious. Tribune should have spent more to develop syndicated daytime programming and to improve news in its smaller markets, said this person, who declined to speak for attribution over fear of jeopardizing future business deals.

Perhaps Tribune’s biggest missed opportunity, he added, was failing to sell the TV stations a few years ago when the market was strong and many of the problems of the industry could be seen on the horizon.

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thomas.mulligan@latimes.com

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The big squeeze

Cash flow at Tribune’s broadcasting division -- its earnings before interest, taxes, depreciation and amortization -- has been hurt as ad revenue shrinks. But what concerns analysts more is the cash flow margin, or cash flow calculated as a percentage of revenue. The division includes 23 TV stations.

Breakdown of Tribune’s 2006 Revenue

Publishing:

Advertising: 59.1%

Circulation: 10.4%

Other: 4.7%

Broadcasting/entertainment:

TV: 21.3%

Radio/ent.**:4.5%

TOTAL: $5.5 billion

*Estimates. Figures reflect the effect of sales of three TV stations in 2006.

** Includes the Chicago Cubs.

Sources: Bear Stearns, Tribune