In a letter to Chicago-based Tribune's board of directors today, the Chandler family, which controlled Times Mirror Co. until its $8 billion merger with Tribune in 2000, said the company's core business strategy has failed. The Chandlers currently own 12.2% of Tribune's stock
"The basic premise of the Tribune/Times Mirror merger was that the cross-ownership of multiple premium major-media properties in the nation's three largest markets would provide a platform to produce above-average industry performance," the letter reads. "This strategy has failed."
'False sense of urgency'
The letter -- signed by the Chandler Trusts -- also accused Tribune management of creating a "false sense of urgency" in pushing directors to approve a management-led move to buy back 25% of the company's slumping shares, and it called the board's decision to approve the transaction "hasty and ill-informed."
Analysts say there's no arguing with the Chandlers' premise that the 2000 merger has been "disastrous," noting that Tribune's stock price has lagged its struggling newspaper-industry peers.
But they also note that many of the largest reasons for the underperformance can be traced to the Times Mirror properties when they were still under the Chandlers' control. Those issues include: a circulation-fraud scandal at Long Island-based Newsday, a $1 billion 2005 tax penalty stemming from a pre-merger transaction by Times Mirror, and chronic financial weakness at the Los Angeles Times.
Even more issues
Other problems include the newspaper industry's larger woes, a ratings implosion at the late WB Network, which provided prime-time programming for most of Tribune's stations, and the Federal Communications Commission's inability to eliminate a ban on newspaper publishers owning local television stations in the same market.
Tribune is currently operating stations in New York, Los Angeles, Connecticut and South Florida with waivers. (Its Chicago newspaper and TV pairing is exempt because it predates the regulation.)
Veteran newspaper analyst Edward J. Atorino said the argument can definitely be made that the Chandlers are more at fault than Tribune Chairman-CEO Dennis J. FitzSimons, whose predecessor, John W. Madigan, executed the merger. "But that doesn't matter now," said Mr. Atorino. "The probability is that this will be a dramatically changed company within 12 to 18 months."
"It's somewhat ironic that the Chandlers are citing the stock underperformance, because the Times Mirror issues were the big reason for it," said John Miller of Ariel Capital Management, Tribune's sixth-largest shareholder. "But we do agree with them that this stock should be trading for a lot more than it is."
Explore possible sale of company
Specifically, the Chandler Trusts, which have three representatives on Tribune's 11-person board, are calling for Tribune to separate its newspaper and TV business, ideally through a tax-free spinoff. Next, it wants Tribune to explore other strategic alternatives, including a possible sale of the company as a whole at a premium price. And, third, the Chandlers want the board to appoint a committee of independent directors to "oversee a thorough review and evaluation of the management, business and strategic issues facing Tribune."
In a memo to Tribune employees Wednesday, Mr. FitzSimons said that many of the Chandlers' claims were innacurate, and that the company would continue to focus on Internet acquisitions, divesting non-core properties, and cost-cutting. "We believe Tribune Company has a great future and we are focused on creating long-term value for all of our shareholders, many of whom are employees," he wrote.