Tribune, Chandlers May Be Near Deal to Unwind Partnerships

Tribune Co. and California’s Chandler family are close to unwinding two controversial partnerships at the heart of a boardroom battle that has roiled the company since early June, several sources close to the situation said.

After several weeks of “constructive” discussions, sources said Tribune Chairman Dennis FitzSimons and his team spent much of Tuesday and Wednesday trying to hammer out a solution with Los Angeles attorney William Stinehart, one of three Tribune board members representing the interests of the Chandler family, the former owner of the Los Angeles Times and the Chicago-based company’s largest shareholder.

Spokesmen for both the Chandlers and Tribune declined to comment on the meetings or the shape of the partnership discussions. But sources close to the situation said the hope has been to reach a resolution before a Tribune board meeting slated for next week.

The two partnerships, formed in the late 1990s, allowed the Chandlers to diversify their newspaper holdings through a tax-free swap of family stock for company assets. However, the partnerships had to stay intact for seven years to preserve the tax benefits. Tribune inherited its stake in the partnerships as part of its $8.2-billion acquisition in 2000 of Times Mirror Co., the parent of The Times.

Tribune and the Chandlers have been negotiating to unwind the partnerships, which this month are both 7 years old. But talks have stumbled over several issues, including the valuation of preferred stock in the partnerships and a tax liability of about $70 million that Tribune would incur.

Whether unwinding the partnerships would quiet the Chandlers, however, is unclear.

The Chandlers have loudly criticized Tribune management for letting the stock -- which closed Thursday unchanged, at $31.25 a share -- drop from its high of more than $52 a share two years ago. A source close to the family said the Chandlers were still most interested in seeing their Tribune assets appreciate.

This summer, the Chandlers opposed Tribune’s proposal to launch a $2.5-billion leveraged stock buyback to boost the sagging stock price, afraid that the debt the company would take on to buy the shares would upset valuations in the partnerships.

The family has its own ideas for boosting the stock, including a tax-free spinoff of television stations. Such a spinoff would be possible under complex tax rules once the partnerships were unwound. Another option: selling the Los Angeles Times.

The showdown between the Chandlers and Tribune, and the prospect that the company could be broken up or taken over, has attracted new investors to the stock. A hedge fund run by activist shareholder Nelson Peltz accumulated a 1.2% stake in Tribune during the second quarter. Peltz recently launched a proxy battle at H.J. Heinz Co. and won two board seats.

More quietly, Davidson Kempner Capital Management, which specializes in buying stock in troubled companies or those undergoing big changes, bought a 1.45% stake in the second quarter.