Tribune's Future Not Easy to Read

By James Rainey and Meg James

Sept. 23, 2006 12 AM PT

Times Staff Writers

The revelation that the leaders of Tribune Co. might sell or break up the media company puts nationally known properties such as the Chicago Cubs and the Los Angeles Times up for grabs. But a variety of observers said Friday that Tribune is more likely to sell its television stations or smaller newspapers than its marquee holdings.

Chief Executive Dennis J. FitzSimons and his management team will explore various options for increasing the Chicago company’s stock price. But a committee of seven independent directors named Thursday will have the final say on the future of the company, said a person who was familiar with the board’s deliberations.

“Dennis said he believes in his strategy and that it would have positive outcomes,” said the source, who requested anonymity. “But we have not seen that financial performance, and he hasn’t delivered what he said. Now the committee is going to have to look at other things to do.”

The special committee plans to hire an investment banking firm as an advisor to complete its review by year’s end.

The prospect of change sent Tribune shares soaring $1.94 Friday, or 6.1%, to $33.99, the highest price in nearly a year. Some analysts and the largest shareholder, the California-based Chandler family, have projected that the company would be worth substantially more if some of its 12 newspapers or 25 television stations were sold piecemeal or spun off to shareholders -- perhaps lifting the shares into the $40 range.

In July, one Wall Street firm estimated the company’s breakup value at about $10 billion -- more than its $8.4-billion stock market value.

But many other observers pointed to myriad problems confronting the company, including a debt load that now stands at $4.6 billion. Tribune’s faltering bond ratings fell again Friday, when two credit-rating firms, Standard & Poor’s and Fitch Ratings, downgraded the company’s debt to junk status.

More fundamentally, television stations and newspapers are seeing their audiences and advertising revenues siphoned off by new media, especially the Internet. Tribune and other newspaper companies have struggled with sagging sales in the last two years.

Citigroup analyst William Bird, in a report published Friday, speculated that there was only a slight chance Tribune would be sold to another media company or taken private by an investor group. He said the company’s high debt level, lack of growth and high concentration of stations in the unproven CW network “are factors not likely to draw high private-equity interest.”

Much more likely, in Bird’s view, is a spinoff of the broadcast division. He said the value of the two pieces would trade at a total of $34. That’s barely above Tribune’s closing share price Friday, although a split-up probably would produce greater value in the long run, he said.

Despite skepticism from the financial markets and many Tribune employees, FitzSimons has given no indication that he intends to drop the “synergy” strategy launched when the company bought Times Mirror Co., the former parent of The Times, which was controlled by the Chandler family.

Since the 2000 acquisition, Tribune has banked on the largely unfulfilled promise that cross-ownership of newspapers and television outlets -- particularly in Los Angeles, Chicago and New York -- would drive up ad sales.

Even after this week’s action seemed to put the entire company in play, FitzSimons told the Wall Street Journal: “The L.A. Times is part of Tribune and not for sale.”

Veteran newspaper analyst John Morton said the company showed no signs of changing its stand. “To sell one of their major newspapers would negate their whole operating philosophy of the last six years.”

The appeal of selling the company’s biggest papers, including the Los Angeles Times, could also be limited by the substantial tax bill the company would face, according to one newspaper executive. And Tribune probably would not readily relinquish the paper that produces one-fifth of its revenue and profit.

Interest in buying The Times from three wealthy Angelenos may not overcome those barriers.

A more probable scenario would be the sale of three smaller papers in Connecticut -- the Hartford Courant, the Stamford Advocate and Greenwich Time -- and the Allentown (Pa.) Morning Call, Morton said.

The most likely buyers of such properties in recent years have been companies already operating in the region, allowing for combined editorial, advertising and even printing operations.

That could mean the Newhouse family’s Advance Publications, owner of a newspaper in Easton, Pa., might take an interest in the Morning Call. A particularly low-cost operator, the Journal-Register Co., already owns several papers in Connecticut and could bid on those in that state, Morton added.

The market for television stations faces its own challenges. Besides similar tax issues, there is a flat advertising market that is heading into a nonelection year, lacking lucrative political advertising.

Further uncertainty comes because the Federal Communications Commission has not resolved the question of how many television stations a media company can own or whether a company can operate a newspaper and TV station in the same geographic market. That decision is not expected until the spring, further limiting the field of buyers, a media analyst said.

But the television group may have more value as a unit because it is in the position to buy syndicated shows, a prime driver of audience numbers and ad revenue.

That would argue for keeping the Tribune stations together, perhaps in a tax-free spinoff or a private purchase, said a television executive who asked not to be named.

Thursday’s pivotal board meeting did nothing to resolve the fate of several key players in the Tribune drama.

FitzSimons remains in control of the company and is involved in the study of future alternatives. He is said to be well-liked by the Tribune board, which is dominated by prominent Chicago business executives who have stood by him even as the company stumbled financially and the dissatisfied Chandler family rebelled.

One person close to the company said the CEO’s fate had become increasingly uncertain as a loyal board came to believe it was obliged to heed the Chandlers’ complaints.

But others painted a scenario in which FitzSimons remained in charge of a scaled-down Tribune that maintained its core Chicago assets -- the Chicago Tribune, WGN-TV and the Cubs baseball team -- and most of its newspapers.

Two other top executives with the company -- Los Angeles Times Publisher Jeffrey M. Johnson and Editor Dean Baquet -- also remained on uncertain footing. Both aroused the ire of their Tribune bosses last month, when they balked at demands to cut the size of the paper’s editorial operation.

A business associate of FitzSimons’ said he believed that the Tribune chief would not let the apparent act of defiance go unpunished. But another person in the company’s upper ranks said The Times duo could be viewed as fulfilling their duty for insisting on blocking reductions that they felt would damage the quality of the paper.

Despite predictions to the contrary, the Tribune board scarcely focused on the controversy at Thursday’s meeting. In a five-hour session, the directors spent only a few minutes discussing The Times’ editor and publisher.

“The board is more concerned with all the newspaper and TV stations,” the insider said. “They are involved in the macro level, looking at the future of the company.”

james.rainey@latimes.com

meg.james@latimes.com

Staff writer Thomas S. Mulligan contributed to this report.

(BEGIN TEXT OF INFOBOX)

Tribune Co.

Founded: 1847

Headquarters: Chicago

Chief executive: Dennis J. FitzSimons

Employees: 22,400

Publishing holdings: Twelve daily newspapers, including the Los Angeles Times, Chicago Tribune, Newsday, Baltimore Sun, Orlando Sentinel and Hoy (Spanish-language)

Television holdings: Twenty-five stations, including KTLA (Los Angeles), WGN (Chicago) and WPIX (New York)

Other properties: Chicago Cubs baseball team, WGN radio

Investments: CareerBuilder (online recruitment services), 42.5% share; TV Food Network, 31%; ShopLocal (online advertising), 43%; Legacy.com (online obituaries), 40%

Market capitalization: $8.4 billion

2005 revenue: $5.6 billion

Source: Tribune

Sum of the parts

Morgan Stanley estimated in July that the net value of Tribune’s parts amounted to $10 billion.

---

Est. market value (in billions)

Newspapers: $9.5

TV, radio, entertainment: $4.3

Investments, cash, other: $1.7

Chicago Cubs: $0.4

Debt, preferred stock: -$5.2