Tribune in hot seat over lagging stock

CHICAGO (AFX) - Faced with circulation declines at its newspapers and with restive shareholders, pressure may be growing on media conglomerate Tribune Co. to take drastic action to boost a lagging stock price. 

Tribune has so far rejected calls for a sell-off of prize properties. Instead, it has been shedding select TV stations and buying back its stock. Ahead of a Tribune board meeting Thursday, industry experts said the company is likely to stick to that strategy for now rather than accede to the demands of outsiders who don't have big ownership stakes to back them up. If results don't improve, however, Tribune may ultimately have to reconsider its refusal to auction off such rich assets as the Los Angeles Times, its entire broadcast group or the Chicago Cubs.

"Unless there is a real shareholder uprising, Tribune management can take its time to find a solution that meets everybody's objectives," said Edward Atorino, an analyst with Benchmark Co. "Any serious effort to restructure this company, if there is one, is likely to be in '07."

But Tribune, he noted, is "a long way from turning the corner."

The company isn't seen as likely to alter the strategy it outlined in May until it untangles complex partnerships with the dissident Chandler family, its largest single shareholder. The partnerships create major tax implications for both sides with every transaction, and unraveling them will be costly. Morgan Stanley analyst Lisa Monaco estimated in a report to investors Monday that Tribune "could be hit with a cash outlay of an estimated $655 million as a result of the dissolution."

The two sides have held talks about ending the partnerships, and The Wall Street Journal reported last week that a settlement is close. Both sides refused comment this week.

Tribune spokesman Gary Weitman declined to answer questions about either the talks with the Chandlers, who hold two board seats, or the company's options.

"We don't comment about reports and speculation," he said.

While an agreement with the Chandlers could remove one roadblock to Tribune's future, new opposition has flared on another front.

A high-powered citizens group in Los Angeles released a letter to the Tribune's board last week in which it asked directors to either put more money into the Times or sell it. The Civic Alliance, which includes former U.S. Secretary of State Warren Christopher, expressed its concern that further staff reductions could erode the quality of journalism at the newspaper.

Chairman and CEO Dennis FitzSimons responded in a four-page letter Monday, saying the paper has improved since it was acquired by Tribune in 2000.

The LA Times has won 13 Pulitzer Prizes since then and Tribune has spent more than $250 million in capital investments at the paper while expanding the publication's emphasis on Southern California news.

"We hope you will evaluate the Los Angeles Times and its related Web sites, not on the ownership structure or the size of their editorial staff or budget, but on how well they serve the community's needs," FitzSimons wrote.

At the same time, Times Editor Dean Baquet publicly defied the corporate parent's budget-trimming plan, writing in the paper that the latest proposed cuts to the editorial staff "go too far."

While the resistance isn't likely to force Tribune's hand or cause it to dispose of its biggest daily, it underscores the company's heavy reliance on cost cuts to take the edge off weak results in recent years -- with decidedly mixed results. Analysts say FitzSimons, who is said to be working on a plan for Tribune's future, will have to look elsewhere if he makes changes.

"The most likely scenario for now is that they go on as is with their share repurchase plan," said analyst Dave Novosel of the research firm Gimme Credit. After that, he said, possible Tribune actions are "all over the board."

"Down the road might be the likelihood of going even further, such as selling the LA Times, the broadcast operations and one or two other newspapers, kind of the Knight Ridder strategy," Novosel said.

Knight Ridder Inc., then the nation's second-largest newspaper company, sold itself to McClatchy Co. this year after its biggest investors became frustrated with the company's stock performance. Industry observers think Tribune is not nearly at that point, with no evidence of an imminent shareholder rebellion.

But in an age of shareholder activism, a revolt can't be written off -- especially since the stock has risen only moderately since the company decided to pursue a $2 billion stock buyback funded by cutbacks, loans and the sale of at least $500 million in assets.

In an industry reeling from the loss of readers and advertising to the Internet, no company turnaround is yet under way. Tribune said earlier this month that a continuing drop in circulation revenues contributed to a 1.6 percent decline in August sales.

If investors' patience dissolves, Tribune could be forced to review its pledge to retain its holdings in the three largest U.S. cities: New York, Los Angeles and Chicago.

What about the possibility of the media giant ending its 25-year ownership of the baseball Cubs, which by some estimates could fetch Tribune $500 million?

As with its opposition to a sale of the Times, analyst James Goss of Chicago-based Barrington Research Associates said that transaction wouldn't be Tribune's preference.

"In some ways, selling the Cubs would be very appealing and would raise a lot of cash. Yet I think they still view the Cubs as important in their superstation strategy," since its broadcasts on cable superstation WGN are lucrative.

Besides the Cubs and WGN, Tribune's holdings include 11 daily newspapers, 25 TV stations, WGN-AM radio and Internet ventures. Copyright 2006 Associated Press. All rights reserved. This material may not be

Copyright 2006 AFX News Limited. All Rights Reserved.