Advice to Tribune Co.: Keep Chicago, Dump the Rest

Chairman Says All Options Are 'On the Table'

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CHICAGO (AdAge.com) -- With the Tribune Co. edging closer to a possible breakup or sale, one veteran analyst said the company's best bet is to keep its dominant Chicago holdings and sell everything else.
Tribune Chairman-CEO Dennis FitzSimons
Tribune Chairman-CEO Dennis FitzSimons

The company, which owns daily newspapers including the Los Angeles Times and New York's Newsday, as well as the new CW network's primary TV station group, is the Windy City's dominant media firm, with holdings including Chicago's biggest newspaper (Chicago Tribune), best-rated radio station (WGN Radio), CW Network affiliate (WGN), leading city magazine (Chicago), a landmark gothic tower and even the woeful-yet-beloved Chicago Cubs baseball team.

The family jewel
"A good outcome for them would be to keep the paper, the stations, the Cubs, the building -- and sell everything else," said Edward J. Atorino of Benchmark & Co. "Chicago is the family jewel, everything else is just stuff they bought."

Speculation about Tribune's future is rampant because the company said late yesterday that it was forming a committee of its directors to explore "creating additional value for shareholders" by the end of 2006. That decision followed yesterday's board meeting, after which Chairman-CEO Dennis FitzSimons told the Chicago Tribune that "everything is on the table."

That decision followed a contentious spat between the company and its largest shareholders, the Chandler family, over the direction of the media concern. In June, the Chandlers -- who sold Tribune the Times Mirror Co. in an $8 billion merger in 2000 that's proven disastrous in large part due to business problems at the Times Mirror properties -- called for a breakup of the company.

Those calls were rebuffed by the Tribune board, which instead opted for a $2 billion stock buyback and the sale of $500 million worth of non-core assets. While the buyback has gone ahead and Tribune has shed stations in Boston and Atlanta, the company now appears poised to explore some of the more drastic steps the Chandlers had called for.

Will work 'collaboratively'
In the statement released by Tribune yesterday -- which also detailed the restructuring of two complex and valuable partnerships between Tribune and the Chandlers -- a spokesman for the Chandler Trusts said the family will "now work collaboratively with management and the board to build value for all shareholders."

"The Chandlers are getting their day in court," said James Goss, an analyst and Barrington Research in Chicago. "They're getting consideration of their views in exchange for going along."

Mr. Goss said Mr. Atorino's Chicago-only scenario "makes sense," because it avoids the regulatory confusion that would come from an ownership change of the Chicago properties, which are grandfathered from Federal Communications Commission rules against newspaper-TV station cross-ownership. (Tribune currently operates similar clusters in New York, Los Angeles, Connecticut and south Florida under waivers, pending the outcome of an FCC review of the cross-ownership rule.)

Both analysts said the makeup of the special board committee -- whose seven members include five prominent Chicago business leaders -- made it unlikely they'd sell the Chicago properties.

A Tribune spokesman said that the committee would oversee the process, but that any decisions would ultimately be made by company management.

Mr. Goss said he thought the most likely scenario was for the company to shed everything except its holdings in Chicago, Florida (where it owns the Orlando Sentinel, South Florida Sun-Sentinel and some TV stations) and perhaps Los Angeles (where it owns the Los Angeles Times and KTLA TV).

Downgraded to junk status
In a related move, the ratings agency Standard & Poors downgraded Tribune's debt to junk status today, saying that yesterday's announcement cast doubt on the company's earlier vow to reduce its debt following the share buyback.

Tribune's non-Chicago properties would attract a long-list of bidders. Mr. Artorino said the station group would appeal to "everybody. Stations in the biggest markets just aren't normally available. It's beachfront property." One likely bidder, he said, would be Time Warner, part owner of the CW Network, which counts many of Tribune's stations -- including its New York and Los Angeles hubs -- as affiliates.

Several wealthy Los Angelinos have already expressed an interest in buying the Times, including entertainment magnate David Geffen and grocery-store billionaire Ron Burkle. And private equity firms, which like newspapers' hefty margins and ample cash flows and are less turned off by feeble growth rates than Wall Street, are said to be circling all of the company's holdings.
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