Tribune may seek self-help

When the battle for control of Tribune Co. got underway more than eight months ago, investors hoped that a sagging share price would be bolstered as bidders assessed the true value of marquee assets such as the Los Angeles Times, the Chicago Tribune and the Chicago Cubs baseball team.

But as it lumbers toward a conclusion in the coming weeks, the Chicago-based company’s review of strategic alternatives has served, instead, to confirm the dim view that investors have of traditional media operators.

With no clear premium offered by a handful of bidders and its auction already extended once, Tribune management is expected Saturday to ask the company’s directors to review a reorganization and recapitalization proposal. The plan would split the company into broadcast and newspaper divisions, pay a dividend of as much as $20 a share and sell two small Connecticut papers, said two people familiar with the proposal.

If approved, the “self-help” plan probably would leave on the sideline three Los Angeles-based billionaires -- David Geffen, Eli Broad and Ron Burkle -- who had hoped to return The Times to local ownership. None of the three, however, has conceded defeat.

And another business titan, Chicago-based real estate maverick Sam Zell, is pressing a late bid for the company, said a Tribune executive who was not authorized to speak publicly about the deal.

Zell’s proposal would inject new capital into the company, perhaps in combination with funds from an employee stock ownership plan, according to the executive. The arrangement is designed for its tax efficiency.

Tribune would not comment, but several managers at the company said they were anxious about the self-help proposal because, like Broad and Burkle’s plan, it would require heavy borrowing to pay the large dividend. They worried that the company would face new pressure from its lenders to cut costs and reduce staff. That situation could become even more severe if the company cannot find a way to take itself private and out of the aim of public shareholders.

One Tribune manager, who asked to remain anonymous so as not to anger his bosses, said, “It sounds like the worst of both worlds.”

Others said the company still might find a partner, such as Zell, to go private. And they said the reorganization would be worthwhile if it helped Tribune begin to extricate itself from a troubled seven-year marriage with the Chandler family. The California-based family that once controlled The Times assumed a minority position in 2000 when Tribune bought Times Mirror Co.

But the Chandlers soured on the relationship and set the stage for the Tribune auction in June when they protested a $2-billion stock buyback that saddled the company with debt. The family, now the Tribune’s largest shareholder, has given no indication whether it would sign on to management’s alternative.

“Management needs to get the company to a point where it and the board can start to be effective stewards once again of the Tribune Co. and move away from the preoccupation with this internal debate,” said Jay T. Harris, a professor of journalism at the USC Annenberg School for Communication. “Otherwise it causes them, almost by necessity, to be taking their eye off the ball at the corporate level.”

The Chandlers’ representatives said in June that they believed Tribune was worth $42 to $46 a share. But the stock closed Friday at $30.70, up 6 cents and only fractionally above its price before the family helped put the company in play.

Bad news seemed to arrive in waves for the newspaper industry in 2006, and 2007 has not begun well, either. Tribune on Friday reported that revenue through Feb. 4 had fallen 5% compared with the beginning of 2006, with newspaper advertising sales down 7.3%.

Similarly, newspaper giant McClatchy Co. of Sacramento reported that advertising revenue was down 5.8% in January compared with a year earlier.

Many advertisers have shifted their buys to Google and other Internet sites. Newspapers have expanded their Internet ad revenue, but it typically remains 5% to 7% of their total income. This sea change in the business has left many newspaper executives like “deer in the headlights,” unsure how to respond, Harris said.

The Tribune proposal would spin off most or all of the company’s 23 television stations into a new company, perhaps including the Cubs. Most of the 11 daily newspapers would remain in the existing company.

The only pure sale apparently in the offing is for two Connecticut papers: the Advocate of Stamford and the Greenwich Times.

Gannett Co., the nation’s largest newspaper publisher and owner of USA Today, is expected to acquire both papers from Tribune for about $85 million or substantially more if it also buys real estate connected to the papers, said one individual familiar with the negotiations. McLean, Va.-based Gannett could realize cost savings by combining printing, circulation and other operations at the two papers with its dailies in Norwich, Conn., and Westchester County, N.Y. Gannett declined to comment.

The future of the Tribune proposal will depend heavily on how the Chandlers respond. Tribune has explored the possibility of helping the family reduce its stake by involving the McCormick Tribune Foundation, the second-largest Tribune shareholder with 13% of the stock. The foundation would use some of the cash it received from the large dividend to buy stock from the Chandlers.

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james.rainey@latimes.com