Chandlers may bid for Tribune as last resort

The Chandler family fired its first shot last summer. The onetime owner of the Los Angeles Times lashed out at Tribune Co.’s plan to take on debt to buy back $2 billion of its stock and blamed the Chicago company’s “disastrous” decision-making for its sinking stock price.

Those protests forced Tribune into play. But seven months later, the family that is Tribune’s largest shareholder is still waiting for satisfaction. And observers say it’s increasingly unlikely the Chandlers will get it from an auction set to end this week.

Tribune probably will attract few, if any, bids for the entire company by Wednesday’s deadline, and any offers it does receive are expected to be close to the current share price, according to several people who have been observing or participating in the process.

Tribune shares closed Friday at $30.60 -- barely above their level when the Chandlers launched their protests in June.

“You may not have an auction when all is said and done,” said a professional associated with one private equity firm that had been eyeing Tribune who asked not to be named because the auction is confidential.

Merrill Lynch analyst Lauren Rich Fine said in a report to clients Friday that Tribune shares were trading as though investors thought there would be no sale.

“We think there is a distinct possibility of that happening,” Fine wrote, “and note that even if there is a sale, a big premium is unlikely.”

That could prolong the uncertainty overshadowing the company that owns The Times, KTLA-TV Channel 5, the Chicago Cubs baseball team and 10 other daily newspapers and 22 other television stations.

Others following the Tribune saga said they expected at least a few bids for the media giant -- perhaps including one from the Chandlers themselves.

A successful Chandler bid would put the family back in control of The Times after a 118-year reign that ended in 2000 when the paper and other holdings were sold to Tribune.

Those following the deal closely believe that the family would make such a bid as a fallback. Despite myriad potential pitfalls, they said the most consistent interest in a deal has been expressed by a group composed of three private equity firms -- Madison Dearborn Partners of Chicago, Apollo Management of New York and Providence Equity Partners of Rhode Island.

The consortium has long been viewed as a contender for Tribune because of Madison Dearborn’s Chicago roots and its reported interest in hometown assets such as the Cubs and WGN-TV. Former Tribune Chief Executive John W. Madigan was a Madison Dearborn partner until he took a leave of absence in the fall and later resigned.

Tribune’s control of the Cubs could be viewed as particularly attractive to Madison Dearborn CEO John Canning, a onetime college catcher and avid baseball man who has said he would like to own a major league team. Canning already owns several minor league clubs and has a minority interest in Major League Baseball’s Milwaukee Brewers.

Madison Dearborn joined with Providence Equity and three other investment firms last year in the $12.3-billion proposed purchase of Univision Communications, the Spanish-language television broadcaster. Providence also owns a piece of Freedom Communications Inc., which publishes the Orange County Register.

Those previous deals give the consortium experience in the media sector. But the holdings also could become a stumbling block because of federal regulations limiting companies from owning too many media properties in a single locale.

Also said to still be considering an offer for Tribune are Los Angeles-based billionaires Eli Broad and Ron Burkle, partners who have said one of their motivations would be to return The Times to local ownership.

Both of the magnates declined through their representatives to comment on Tribune. “It’s a tough deal to do, but they’re thinking of it,” said one person familiar with the pair’s deliberations.

With no other parties showing obvious interest, that leaves the Chandlers. The Chandler trusts last September became the largest holder of Tribune stock, with 20% of the company’s shares. The family’s stake was increased when two partnerships with Tribune were restructured.

Since then, representatives of the trusts and their 170 beneficiaries have been exploring the possibility of a bid by the family.

“They are not really looking to get back in this business,” said one businessman who has spoken to the Chandlers’ representatives. “But they will do it if there is no other alternative.”

Chandler representatives met with Tribune’s executives last week in Los Angeles to receive a presentation on the company’s assets. The Chandlers have explored joining various partners -- including Broad and Burkle -- to make an offer.

Through a spokesman, the family declined to comment.

The cool reception that has greeted Tribune comes in stark contrast to the Chandlers’ expectations. When the family’s three directors on Tribune’s board first lodged their protest, they cited analysts who valued the company’s stock as high as $46 a share. Some experts predicted that marquee assets such as the Cubs, The Times and the Chicago Tribune would generate considerable excitement.

But the auction faced hurdles, especially because of the newspaper industry’s continuing struggle to establish itself as a winner online.

Newspaper analyst Alan D. Mutter of San Francisco recently calculated that $13.5 billion in newspaper capital value had vaporized over the last two years, as newspaper shares have drooped. The day after Christmas, Sacramento-based McClatchy Co. announced it had sold the Star Tribune in Minneapolis for less than half the $1.2 billion it paid for the paper nine years earlier.

Weighing further on newspaper properties was last week’s news that E.W. Scripps Co., parent of the Rocky Mountain News in Denver and other papers, was considering spinning off its publishing division or selling some papers. That meant there might be more inventory on the market when and if Tribune was sold.

“There is clear concern over the future of newspapers and, for that matter, over television stations because of competition from the Internet and everything else that is happening,” said John Morton, a Maryland-based newspaper analyst. “It’s an unsettling time.”

Tribune assigned seven of its directors in September to a special committee to study alternatives for the company. The committee has not specified when it would review bids.

If offers for the entire company fail, the company may entertain bids for individual assets.

Tribune has thus far declined to consider such proposals, including a $2-billion bid by entertainment mogul David Geffen for The Times.

Individual asset sales could be problematic because many of the businesses have a low tax basis and their sale could trigger a large tax bill.

Tribune also could spin off the TV stations or sell them and use the proceeds to take the newspapers and other holdings private.

The pressure on Tribune to produce cash for its shareholders is unlikely to abate.

A New York investment banker who has been watching the process closely said one way for Tribune to satisfy that demand would be to borrow money and buy back stock -- the same thing Tribune did last summer.

That buyback, however, proved to be a disappointment. It added $2 billion to Tribune’s debt but had little effect on its stock price.

james.rainey@latimes.com

thomas.mulligan@latimes.com