Tribune shares rise on hopes for shakeup

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CHICAGO (AFX) - Investor speculation that Tribune Co. might be laying the groundwork for more selloffs at a special board meeting propelled shares in the newspaper and TV station owner sharply higher Thursday.

Amid calls for drastic action to boost its lagging stock price, Tribune called a meeting of its directors for Thursday at which Chairman and CEO Dennis FitzSimons was expected to lay out proposals for what actions should be taken.

Possible options include everything from selling its broadcast division or other assets, taking the company private or staying the course with a plan it outlined in May calling for a combination of select asset sales, an already completed $2 billion stock buyback and further cost cuts.

In the meantime, however, the company also needs to determine the fate of two complex partnerships with the Chandler family, its largest single shareholder and the former owner of Tribune's Los Angeles Times. The partnerships contain some $3.5 billion in assets and hamper its ability to make transactions because of major tax consequences.

Tribune and the Chandlers began talking weeks ago about ending the partnerships, and some investors were anticipating that a settlement could be imminent.

The company remained closed-mouthed about the meeting. "I can't confirm that a meeting is or will take place," spokesman Gary Weitman said Thursday.

The absence of news didn't stop Wall Street from bidding up the stock. Tribune shares rose $1.22, or 4 percent, to $31.91 in afternoon trading on the New York Stock Exchange.

"The odds in my mind keep going up that there's going to be a big breakup," said Jerry Paul, CEO of Quixote Capital Management, a Colorado-based hedge fund. "It's the kind of thing that's going to evolve over the next six to 12 months."

The three-pronged strategy FitzSimons unveiled May 30 has lifted the company's stock about 15 percent, including Thursday's rise. Since he took over the top job in January 2003, with the stock at $45.46, it has declined about 30 percent.

But the Tribune CEO, while encountering resistance by Los Angeles Times executives to the latest round of proposed editorial cuts, still appears to have the support of large shareholders.

"We have a tremendous amount of confidence in the board, and we believe the board will make the right decision to enhance shareholder value," said John Miller, portfolio manager with Ariel Capital Management LLC. Ariel owns about 6 percent of Tribune shares, making it one of the company's largest shareholders.

"I can't speak for all shareholders, but we're not restless," Miller said. "I don't know of any shareholders who are restless."

Bob Torray, chairman of Bethesda, Md.-based Torray Cos., which also holds millions of shares in Tribune, said the company is worth a lot more than it's trading for but "I'm not that worked up about it."

"I'm a very long-term, patient investor," he said Thursday. "The media business is clearly out of favor on Wall Street. Wall Street has increasingly become a venue for short-term thinkers and financial engineering."

Despite the general pessimism about traditional media companies, Torray said he is bullish on newspapers in the long run. "These companies certainly have the margins and the cash flow to adopt new business platforms. They're a lot better than off than steel companies and copper companies, I'll tell you that, with 20 to 30 percent margins."

Whatever strategy Tribune adopts, experts don't see it as likely to include a sale of the Los Angeles Times -- at least not any time soon.

Tribune has a sticky personnel issue to resolve following the show of resistance this month by Times Publisher Jeffrey Johnson and Editor Dean Baquet, who refused to implement the corporate parent's latest proposed editorial cuts. The Times already has eliminated more than 200 positions over the last five years, and other Tribune papers are watching closely to see how the standoff is resolved.

But major shareholders and industry experts would be surprised if Tribune disposed of its largest asset. Despite a weakened advertising market which has cut into the Times' revenues and a circulation decline, the newspaper is estimated to produce some $250 million in annual earnings before interest, taxes, depreciation and amortization.

"I think it's highly unlikely they'd ever sell the Los Angeles Times," said independent newspaper industry analyst John Morton. "Owning the Times fits with their long-term strategy of owning both newspaper and broadcast interests in the same market. That's basically still their long-range strategy, even if it hasn't worked jolly well so far."

FitzSimons seemed to signal his commitment to continued ownership this week, saying in a letter to 20 Los Angeles community leaders who had urged the company to consider selling the newspaper rather than make cuts that "the Times is, and under Tribune ownership will continue to be, a truly great newspaper."

Following a meeting in Chicago between Johnson and Scott Smith, president of Tribune Publishing, Johnson sent an e-mail to his staff Wednesday which suggested the tension might be easing. In the note, Johnson emphasized cooperation between the newspaper and its parent and said he would work on a budget plan.

The Tribune's latest demands include keeping expenses flat for 2007, a goal that would involve cutting about $3 million from the paper's editorial budget, according to a Times executive who requested anonymity because he was not in a position to disclose the information publicly.

An unspecified number of job cuts is also being asked for as part of a larger examination of how large the paper's news force needs to be, the executive said.

The two partnerships with the Chandler family were created in 1997 and 1999 by the Chandler Trusts and Times Mirror Co., which Tribune bought from the Chandlers in 2000.

They enabled the Chandlers to diversify their Times Mirror holdings through a tax-free swap of family stock for company assets, but only preserved the tax benefits if they stayed intact for seven years -- a period which expired this month.

Negotiations reportedly have focused on the costs that ending the partnerships would entail. Morgan Stanley analyst Lisa Monaco wrote in a report to investors this week that dissolution could cost Tribune a cash outlay of about $655 million.