New leaf, open season at Tribune. Check it out:
(Chicago Tribune (KRT) Via Thomson Dialog NewsEdge) CHICAGO _ The pivotal board meeting held last Thursday on the hushed 24th floor of Chicago's Tribune Tower signaled the end of a summer of conflict between Tribune Co. and its largest shareholder, California's Chandler family.
But it also marked the beginning of a new era at the 159-year-old media enterprise. Tribune, one of Chicago's oldest and most iconic companies, will likely never be the same.
Besieged for months by the Chandlers and then by a growing list of polite but determined major shareholders like Chicago's Ariel Capital, Tribune Chairman and Chief Executive Dennis FitzSimons loosened his hold on the company and set in motion a process to dismantle it.
Over the next three months, management will evaluate restructuring options and present the board with a recommendation. But a committee of independent directors with its own set of advisers will oversee that effort and ultimately decide what gets done.
The idea, said one major investor, is to give comfort to shareholders who had seen their stock drop like a rock for more than two years before the recent restructuring talk turned it upward.
"It's analogous to a special prosecutor," said Brian Rogers, chief investment officer for T. Rowe Price, which owns the third-largest block of Tribune shares. "You'll have a handful of directors that will take a real hard look at this without management's involvement, and that's a positive."
Sources with knowledge of the company's thinking say management's favored solution would be to spin off many of Tribune's 23 television stations in a tax-advantaged transaction, unload several of the smaller papers and take the rest of the company private in a leveraged buyout.
One way to lower taxes in such a deal, said an executive at another media company, would be to take some or all of Tribune's $4.9 billion in corporate debt and put it into the television transaction, thereby reducing the taxable gain. That would have the added benefit of unburdening the balance sheet of the remaining company so it could support the debt required for a buyout of the public shareholders _ presumably including the Chandlers, who currently own a 19.6 percent stake in the company.
Analysts vary in their estimates of what it would cost per share to complete a buyout. But they ranged from $37 to more than $40. Tribune stock is already running in anticipation of a breakup. It opened at $33.15 on Tuesday.
Whether Tribune can get a deal done during such a dismal time in the local media business is hard to predict, analysts said. They noted that buyers for local TV station groups aren't plentiful. And sliding circulation and ad revenue make it difficult to determine how much newspaper assets are worth and how much debt they can support.
Hale Holden, a fixed-income analyst at Barclays Capital Research, points out that Tribune is already trading near the multiple of cash flow paid by McClatchy Co. for Knight Ridder Inc. earlier this year.
Goldman Sachs analyst Peter Appert said in a report Friday that the likelihood of a leveraged buyout was "low." He expects a smattering of assets sales, including the TV stations, instead.
Others, however, said there's so much private equity money sloshing around the market chasing deals that finding interest, even at a relatively high price, might not be so difficult.
Noting that Texas Pacific Group recently funded a $1 billion deal for the low-growth consumer packaging division of Smurfit Stone Container Corp., investment banker Jeff Golman, vice chairman of Chicago's Mesirow Financial, said, "We're seeing money go into deals in companies that are not experiencing significant growth. I don't think that's an impediment to getting a deal done."
A leveraged buyout of this sort would likely require both bank debt and private equity. And one executive at a major private equity firm said alliances between firms interested in bidding would be forming over the next couple of weeks.
Chicago's Madison Dearborn is widely expected to get involved, partly because it has shown plenty of interest in media companies in the past and partly because former Tribune Chairman John Madigan is a special partner there.
This private equity executive said other likely suspects are Blackstone Group, Providence Equity Partners and Kohlberg Kravis Roberts & Co., among others.
Tribune executives have expressed interest in keeping TV stations in Chicago, Los Angeles and New York, and maintaining their grip on the major papers, including the Chicago Tribune and Los Angeles Times. They've also insisted the Chicago Cubs are not for sale.
That may change as FitzSimons evaluates his options. He stated that "everything is on the table," after Thursday's board meeting
Several sources confirmed that the company has already evaluated selling its papers in Connecticut, including the venerable Hartford Courant, as well as one in Allentown, Pa. The company discussed selling the papers to MediaNews Group Inc., the private company run by William Dean Singleton, but talks are not active, said a source with knowledge of the relationship.
Tribune would not comment.
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One Tribune executive said the company may have to content itself with selling some assets and "toughing it out as a public company." But there's plenty of appeal in a buyout scenario for Tribune management.
For one thing, going private would allow the company to run its business without interference from Wall Street. The Chandlers would get bought out along with the rest of the public shareholders and the pressure would be reduced for producing quarter after quarter of earnings growth. Instead, management would be responsible for paying banks interest and principal and giving private equity players an adequate exit strategy after a number of years.
Those are hardly easy requirements. But with newspaper profit margins in the 20 percent to 30 percent range, there might be ample cash to keep up with debt service, said several industry analysts and investment bankers.
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One thing that's clear, however: Tribune isn't likely to escape the kinds of pressures that led to the recent mutinous blow-up at the Los Angeles Times, the company's biggest revenue generator. Under the gun from Chicago for months to cut jobs, Times Editor Dean Baquet was quoted in his own paper saying he would not. His boss, publisher Jeffrey Johnson, supported him.
Going private might take off some of the quarterly pressure to produce profit growth. And private equity partners might be more easily persuaded than Wall Street to sacrifice margins in the short term to invest in long-term revenue producing initiatives, such as more-robust Internet sites.
But one Tribune executive said he has no illusions about what it would be like to partner with a private equity firm. The objective of going private is to boost shareholder value, not create a totem to the public interest like the St. Petersburg Times, which is controlled by the nonprofit Poynter Institute.
"Henry Kravis is not the Poynter Institute," this executive said, referring to the hard-boiled co-founder of the private equity powerhouse Kohlberg, Kravis.
"There would be big demands. It's a way to unlock value."
___
(c) 2006, Chicago Tribune.
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Distributed by McClatchy-Tribune Information Services.
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Copyright 2006 Chicago Tribune
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