Chandlers, moguls in battle for Tribune
The Chandler family, which owned the Los Angeles Times for more than a century, and a partnership of local billionaires Eli Broad and Ron Burkle made competing offers Wednesday for Chicago-based media giant Tribune Co.
After a four-month auction process, the bids pit two powerful Southern California interests in a battle for the company that owns The Times, KTLA-TV Channel 5 and the Chicago Cubs baseball team.
Another bid for only Tribune’s broadcast properties was submitted by a private equity group.
None of the offers provided a clean bid for the entire company that the Tribune board had hoped for, according to people familiar with the matter who asked not to be named because the process was confidential.
The directors now face the difficult task of weighing several alternatives. The board could accept one of the bids or reject all of them.
Tribune’s board is expected to consider the offers at a meeting in Chicago on Saturday. The company declined to comment on the proposals or any other aspects of the auction. A deadline for bids at 3 p.m. Wednesday was artificial in that the company could still entertain other offers.
The Chandler proposal would put the family and its unnamed minority partner in control of Tribune’s 11 newspapers, and would seek to spin off the company’s 23 television stations into a separate entity. The billionaires, by contrast, would leave Tribune intact. They would rely on heavy borrowing to take a roughly one-third interest in the company.
The details of the Chandler offer remained unknown Wednesday night, but were expected to be outlined in a regulatory filing this morning. The family’s trusts, the largest shareholder with a 20% stake in Tribune, put the company in play last summer by publicly criticizing management and calling for a sale or breakup of the company.
The Chandlers sold The Times and the rest of Times Mirror Co. to Tribune in 2000 for about $8 billion.
Broad made one fortune in the home-building business as a principal in Kaufman & Broad and then expanded it by building the retirement savings giant SunAmerica. Forbes magazine has estimated his net worth at $5.8 billion.
Burkle grew up in the supermarket business with a grocery executive for a father and made an estimated $2.5 billion buying and selling grocery chains. He built a reputation for cooperating with unions, often saving jobs in exchange for other concessions.
Broad and Burkle have told friends they would have preferred to buy just The Times to restore it to local ownership. But Tribune’s unwillingness to consider bids for individual businesses led the duo to make an offer for the entire company.
Neither man has any experience in newspaper publishing, a troubled business that has seen advertisers and readers migrate to the Internet.
The Broad-Burkle proposal, a so-called recapitalization that one person described as a “public” leveraged buyout, would roughly triple the company’s long-term debt to more than $10 billion, sharply raising the company’s financial risks and increasing pressure to sell assets or cut expenses.
The most unusual feature of the proposal is a gigantic cash dividend of $27 a share -- about $6.5 billion total -- that would be paid to Tribune shareholders soon after the closing of the deal. For many shareholders, the large dividend could be an attractive selling point: receiving cash yet still retaining stock that Broad and Burkle say would be worth $7 a share after the recapitalization. That estimate, however, is much in doubt on Wall Street.
The cumulative $34-a-share value that the duo assigned to its offer would represent a 12% premium over the $30.34 closing price of Tribune shares Wednesday.
Broad and Burkle contend that the stock should grow in value from $7 to $12 a share in less than four years. Their plan for achieving this growth is unknown, although the two said they “would work closely with management.”
Broad and Burkle would invest $500 million of their own money but the structure could pose serious questions for Tribune’s board.
“They may ask, ‘Why do we need Ron Burkle to do this?’ ” said one Wall Street investment banker who has followed the process closely.
Tribune management may already be considering a recapitalization plan of its own, according to one advisor involved in the auction.
Under the proposal, Broad Investment Co. and Burkle’s Yucaipa Cos. would control six of 16 seats on a reconfigured Tribune board and the principals would be named co-chairmen of the panel. The pair promised to leave the company’s headquarters in Chicago and to keep Tribune Chief Executive Dennis J. FitzSimons and other top executives in place.
The pair would also obtain warrants that would allow them eventually to increase their stake to about 34%. That would give them virtual control as the company’s largest shareholder.
An individual who described the Broad-Burkle proposal argued that the Chandlers and other shareholders would like it because of the large dividend they would realize and the prospect that their remaining Tribune stake would grow in value with new direction from the billionaires.
“These are two investors with proven track records and good judgment,” this person said. “They can work with current management and unlock value in Tribune Co.”
But the two men have not made clear how they would find new revenue to repay those loans -- increasing the risk for the company if there is a recession or if advertising revenue continues to drop.
Even an advisor to the billionaires acknowledged that the two men -- who have no experience operating newspapers -- realize the high risks confronting them.
“For shareholders, they know they are going to get their $27 upfront, which is about where the stock traded before all this started,” said the advisor, who asked not to be named because he had not been authorized to reveal details.
“Then they get a piece of the company going forward,” he said. “It might be worth $7. It might be worth $10 someday. Or it might be worth $2.”
Several private equity firms had earlier made it clear they were bowing out of the Tribune bidding.
Chicago-based Madison Dearborn Partners had been expected to lead one bid. But sources close to the firm said that its consortium, which included Providence Equity Partners and Apollo Management, decided not to make an offer after examining Tribune’s books. The investment firm found declining revenue and potential tax problems.
“Everybody there was hoping they could make sense of this and when you added up the value of each of the properties that you would get to a price above market,” said one person familiar with Madison Dearborn’s thinking. “But when they added up all these prices, they just couldn’t get above market price.”
In addition, Chicago-based Madison Dearborn took a rosier view than its partners, New York-based Apollo and Rhode Island-based Providence Equity, which were even less inclined to go forward with an offer.
The flagging revenues at Tribune’s papers left one Madison Dearborn advisor to conclude, “It’s just a crappy industry. I hate to tell you that. But you know.”