Tribune Emphasizes Deal’s New-Media Play

Tribune Co. on Monday sought to assure the independence and journalistic standards of the Los Angeles Times, amid fears that its deal to acquire the newspaper would result in layoffs and undermine civic leadership in Southern California.

At the same time, Tribune scrambled to counter adverse investor sentiment resulting from the Chicago-based company’s huge investment in the slow-growth newspaper business. The company highlighted its new-media strategy, claiming that together with Times Mirror Co. it would reach more Internet surfers than the New York Times and USA Today combined.

Tribune, the nation’s fourth-largest television station operator and owner of the Chicago Tribune newspaper, announced an agreement early Monday morning to buy Los Angeles Times’ parent company, Times Mirror, in a stock and cash deal worth $5.8 billion. Tribune will also assume $1.37 billion of Times Mirror debt if the deal is approved by shareholders and federal antitrust regulators.

Times Mirror shares, which have slumped more than those of other newspaper companies this year, soared $37.69 on Monday, to close at a 52-week high of $85.63 on the New York Stock Exchange.

Tribune shares took a pounding as investors interpreted the move as a reversal of its recent promise to move away from newspapers in favor of growth-oriented broadcasting and new-media properties. After falling to a low of $27.88 in heavy trading, Tribune stock bounced back to close at $30.81, down $6.38 a share.

The transaction comes amid wrenching changes in the media landscape, marked most vividly by America Online Inc.’s proposed takeover of Time Warner Inc. that would bring together the biggest name in new media with a world-class symbol of old media.

New technologies, splintering audiences and government deregulation have spurred a wide-ranging consolidation of media over the last decade, with a handful of global conglomerates emerging with both entertainment content and an array of channels for its distribution to consumers, including the Internet.

Mid-sized companies such as Tribune are scrambling to compete as a panoply of media choices fragment consumer attention as well as the advertising pie. Tribune envisions giving advertisers a one-stop shop by delivering a range of local outlets such as television, radio, newspapers, cable channels and Internet sites in the same city.

In Chicago, the company owns the Tribune, the WGN superstation, a 24-hour news channel, a Web site with 2 million distinct visitors a month and the Chicago Cubs professional baseball team.

Based on Monday’s close, the value of the shares held by the Chandler family, which controls 66% of Times Mirror voting shares, was $1.43 billion. The family, which together with the founding Otis dynasty have run The Times for more than a century, have agreed to pledge their shares in favor of the deal and convert their entire holdings into Tribune stock.

They would own approximately 10% of Tribune, whose financial performance in operating newspapers has been superior to Times Mirror’s.

“The message from the Chandlers is that they prefer Tribune management to their own,” said James Marsh, an analyst at Prudential Securities, noting that Tribune has some of the highest profit margins in the industry.

Analysts grappled to make sense of the deal. “I wonder what Tribune is thinking,” Marsh said. “Tribune has been sending signals to investors that they are primarily interested in broadcasting and educational publishing because newspapers are slower-growing and have high private-market values. How do they unlock the value of the broadcast assets if they are smothering them with $8 billion worth of newspapers?”

He said investors bailed out of Tribune stock Monday because it is no longer perceived as an electronic-media play but as an old-media play.

“The premium looks offensive on the face of it, but Tribune is getting a good deal,” Marsh said.

Tribune highlighted the new-media attributes of the deal, outlining how it would use the promotional clout of its 22 television stations to drive traffic to newspaper-based Internet sites, particularly in cities where it would own both, namely New York, Chicago, Hartford and Los Angeles.

“AOL-Time Warner validates a lot of things we’re investing in--putting together old media and new media,” said John W. Madigan, Tribune chairman, president and chief executive.

The company said that when combined with Times Mirror, its Web sites would reach about 3.4 million unique visitors a month--more than the 1.8 million people who visit the New York Times’ sites and the 1.3 million who sign on to USA Today’s site.

“The combination of our two interactive groups puts us in the top 20 in terms of Internet reach,” said Jeff Scherb, Tribune’s chief technology officer and Tribune Interactive president. “This will be significant in capturing the national advertising dollars on the Web.”

Madigan acknowledged that Wall Street is still grappling with the uncertainties of a convergence of high-flying new media with traditional media assets.

“The Holy Grail here will be building online audiences attracted to local journalism into a national network,” said Lee Westerfield, an analyst at PaineWebber Inc. who noted that 37% of American consumers live in the nation’s three largest cities, giving Tribune a broad reach for attracting national advertisers.

Rudolf A. Hokanson, an analyst with CIBC World MarketsHokanson said that though Times Mirror “has dabbled” in developing Internet-related business, “the Tribune has received significant acclaim for what they’ve been able to do in managing Internet and newspaper environments side by side. They know what they’re doing.”

Several analysts praised Tribune’s superior financial performance in running newspapers. Tribune Co. posted the highest operating profit margin last year among the nation’s 16 major publicly held newspaper companies. Its operating margin was 29.2%, versus an industrywide average of 22.2% and Times Mirror’s level of 18.2%.

“They run fairly tight ships, more so than has been true of Times Mirror, even under Willes,” said John Morton, a Silver Spring, Md.-based newspaper industry consultant.

Times Mirror’s performance has improved under a stewardship marked by cutbacks under Mark Willes, chairman and chief executive, who joined the company in 1995 after 15 years at General Mills.

The deal would end more than a century of ownership of Times Mirror by the Chandler and Otis families and leave Los Angeles as the largest city in the nation without a locally owned metropolitan daily, raising fears among community leaders of downtown’s economic vitality. The only remaining Fortune 500 companies based in downtown are Atlantic Richfield Co., which has agreed to be acquired by BP Amoco, and Times Mirror, whose seven English-language dailies also include Newsday in New York and the Baltimore Sun.

Tribune stressed that there would be no staff reductions at The Times, while conceding that severance packages would be given should there be reductions in the Times Mirror corporate staff.

Tribune also said it would continue Times Mirror’s strong outreach to the community. The company said it donated $5 million to local community groups in 1999. That compares with the $5.8 million that Times Mirror, its foundation and the Los Angeles Times contributed to Southern California organizations last year.

Tribune’s Los Angeles operations include a television production company, KTLA Channel 5 and a 25% stake in the WB television network.

Tribune said the Chandler family had insisted on setting up a special review board, of which it will comprise 40% of the membership, for a new Los Angeles Times subsidiary, in order to keep its hand in community outreach. The board will have no role in setting budgets or in daily management.

Tribune also stressed the operating efficiencies of the deal. “The reason we did this is to guarantee the future of magnificent papers like the LA Times,” said Jack Fuller, Tribune Publishing president, noting that Times Mirror’s newspapers will provide additional cost savings for buying such things as newsprint.

Analysts say that Tribune has the lowest newsprint waste in the industry and also has a low ratio of advertising to editorial content.

Marsh said that Tribune is paying a reasonable price for Times Mirror, based on the private-market values of newspapers.

Despite a 20-day period in which other bidders could make a rival bid, Morton said he doubted any other serious bidders would emerge. Among other reasons, he pointed out that the negotiated purchase price is equivalent to 13 times Times Mirror’s cash flow last year, which he said is in line with--or slightly higher than--the going rate for newspaper acquisitions.

This deal is a landmark in the newspaper industry, Morton said. “It dwarfs anything that’s happened before. . . . This raises the question of what will happen to every other family-owned newspaper company.”

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How Stocks Fared

Although Tribune Co.’s shares tumbled Monday, its stock, and Times Mirror Co.’s stock, had been strong performers for much of the late 1990s. Tribune has been boosted by its broadcast and Internet focus; Times Mirror rejuvenated earnings with a major mid-90s restructuring.

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Source: Bloomberg News

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