Outright sale seen unlikely for Tribune

CHICAGO (AFX) - Barely three months after the demise of Knight Ridder Inc., the same pressures that forced the storied newspaper publisher out of existence are shaking the foundations of another media empire.

But as Tribune Co. considers a potentially drastic makeover amid impatience on Wall Street, declining circulation and other issues, the third-largest U.S. newspaper company isn't necessarily facing a wholesale dismantlement or selloff within the next few months.

The pressure on Tribune to act is intense, though. Tribune signaled a week ago its intent to make big changes, and CEO Dennis FitzSimons says all options are on the table.

While an outright sale of the company, as happened with Knight Ridder, may not be likely, several partial breakup scenarios are starting to emerge, ones the company will have to consider before investors force action.

The Los Angeles Times and other prize jewels all will be studied for what selling them would do to the company's stock, tax bills and future, even though FitzSimons insists the Times isn't for sale.

Tribune underscored its commitment to a significant overhaul on Thursday, saying it has hired Merrill Lynch and Citigroup as financial advisers and retained Skadden, Arps, Slate, Meagher & Flom as legal counsel for its independent board committee reviewing strategic options.

FitzSimons said in a statement that Tribune's initial focus will be "determining the best strategic alternatives for the company and its publishing and broadcast groups as a whole, before evaluating strategic alternatives for individual business units."

While anything is possible, most analysts see a sale of the entire company as unlikely due to a dearth of potential buyers and other factors.

"You're talking about some very large papers and a TV station group and the Cubs organization, so you have just a broader spectrum of assets there," said Dave Novosel of Gimme Credit, a Chicago-based corporate bond research firm. "That would make it a little more difficult."

Tribune's excellent profit margins and strong free cash flow nonetheless make it attractive, he noted.

Tribune, whose board is studying options for the company to take by year's end, declined to make FitzSimons or other executives available for comment.

"Everything right now is speculative," said spokesman Gary Weitman. "And we can't comment on any of it."

The Chicago Tribune last week cited unidentified sources as saying the company's preferred solution is to spin off many of its two dozen TV stations, sell several smaller papers among its 11 dailies and take the rest of the company private in a leveraged buyout.

That outcome, however, hinges on lots of buyers stepping forward with big checks at a time when the newspaper industry is under siege from Internet competition for its readers and advertising dollars. Other questions also hang over local television stations.

Tribune insisted until recently that such marquee assets as the Cubs or its Tribune Tower headquarters building were untouchable, as were businesses in its three major markets of Los Angeles, New York and Chicago. But many think that has changed as the stock continues to languish.

So far, the only reported inquiries into Tribune properties to have surfaced publicly in the last week are for smaller Tribune papers: The Morning Call in Allentown, Pa. and three Connecticut dailies -- The Hartford Court, the Advocate of Stamford and the Greenwich Time.

Billionaire Ron Burkle, business leader Eli Broad and Hollywood mogul David Geffen have voiced interest in the Los Angeles Times, but no formal offer is said to have been made. A spokeswoman for Geffen's office declined comment and Burkle and Broad did not return phone calls.

One problem Tribune doesn't face, at least right now, is a clamor from angry institutional shareholders to quickly dump properties to boost the lagging stock price.

But the Chandler family, which now has a 19 percent stake in the company, could revive its push for a breakup. The Chandlers sold Times Mirror Co., parent company of the Los Angeles Times, to Tribune in 2000 and have three board seats.

That unspoken pressure adds to a consensus that Tribune won't stand pat with its current strategy of a $2 billion stock buyback funded by operating cutbacks, debt and limited asset sales.

One possible scenario cited by industry insiders is the company selling many of the properties it has picked up in recent years and reverting to being more what it was like before the Times-Mirror deal.

"In order for Dennis to avoid the problem (Knight Ridder CEO) Tony Ridder ran into, which is the shareholders forcing you into something, he may have to go back to the future," said Edward Atorino, an analyst for Benchmark Co. "That means they have to sell a lot of stuff."

But there appears no simple way for the company to light a fire under a stock price that has fallen from $45.46 when FitzSimons took over in January 2003 to the $30-$33 range during September, remaining down nearly 30 percent.

"Our conclusion is that, in the near term, value-enhancing strategic alternatives are limited," said UBS analyst Brian Shipman.

Splitting out the TV division and going private would entail difficulties.

A spinoff of television assets may not happen right away as its value hinges on the CW network, which is still too new to evaluate, Shipman said in a client note.

"If Tribune thinks that the new network will achieve higher ratings and hence better ad revenues than their former WB affiliates, we believe the company should wait for this improved financial performance before attempting to spin off this business," he said.

Taking the company private would remove Tribune from under Wall Street's microscope, said John Miller, a portfolio manager for Ariel Capital Management, which holds about 6 percent of Tribune's shares.

"They could run the business looking at the long-term economics of the industry, as opposed to meeting quarterly estimates," Miller said. "Who knows -- it could even allow the company to make additional investments in the core businesses."

Being private hasn't proven to be nirvana, however, either for employees of privately held newspaper groups that continue to whittle away at costs or for the owners who find themselves beholden to bondholders instead of shareholders.

John Morton of Morton Research Inc., a longtime newspaper industry analyst, suspects Tribune will wind up disposing of TV stations where it doesn't have newspapers and small newspapers where it doesn't have TV stations. That would be far short of a repeat of the Knight Ridder scenario.

"But with this kind of turmoil," Morton says, "who knows?" Copyright 2006 Associated Press. All rights reserved. This material may not be

Copyright 2006 AFX News Limited. All Rights Reserved.