Several pieces in Tribune's puzzle

Price tag may be high for full sale; tax issue at heart of breakup

The question increasingly on the minds of many media watchers is less whether Tribune Co. will get gobbled up but whether those digesting its assets will dine a la carte.

It's tough to say who might hunger for the entire $8 billion group of businesses, which haven't proved particularly synergistic for their present owner. But at least one formal offer for the whole enchilada already has surfaced, and some say bidders might buy the entire company and then sell off parts piecemeal.

Several members of Los Angeles' Chandler family — which sold the Times Mirror newspaper group to Tribune in 2000 for $8.3 billion — have been unhappy with the value of their big block of Tribune shares, and it was their grumbling that prompted Tribune to begin soliciting offers of interest in September.

Chairman, president and CEO Dennis FitzSimons said at the time that the exploration of alternatives was "consistent with our overall objective to generate the most value for all Tribune shareholders."

The news fueled a stock rise sufficient to produce a 52-week high of $33.99 on Sept. 22.

"The sale speculation has obviously boosted the shares," Thomas Weisel Partners analyst Christa Sober Quarles said. "But at these prices, some sort of event is priced in, and that makes it tougher for an acquirer to build in much of a premium, given that the market is already building in a premium."

Tribune touts itself as the only media organization with newspapers, TV stations and Web sites in the nation's top three markets.

In addition to the Los Angeles Times, Tribune newspapers include the Chicago Tribune, Newsday in suburban New York, the Baltimore Sun, the South Florida Sun-Sentinel and the Orlando Sentinel. Its broadcast group includes 25 TV stations, cable Superstation WGN, WGN-AM in Chicago and Major League Baseball's Chicago Cubs. A group of investors has been lining up financing for a possible purchase of the Cubs, estimating the team's value at $600 million.

In assembling its media assets over the years, Tribune figured regional and national market concentration would increase advertisers' spending over multiple properties. But coinciding with that game plan, the ad industry has marked a discernible shift away from broadcast and print to new platforms, in which Tribune is less endowed — and a U.S. economic recession in 2001 sure didn't help.

Industry observers also suggest Tribune has failed to integrate its disparate media properties in any meaningful way, perhaps partly because of anxiousness over lingering gray areas in media-ownership regulations. Its lack of success in integrating the assets would seem to lend weight to the argument that the company would fetch more chopped up into parts. But that strategy has at least one problem.

"Unless you buy the entire company in a straight stock deal, you're going to have very complicated tax issues," said Todd Jadwin, senior managing director of the Alexander Dunham Capital investment firm in Los Angeles.

So anyone looking to sell the company in parts will have to account for a big tax bill attendant to such an approach, Jadwin said.

John Morton, an independent analyst of newspaper stocks, is something of a contrarian in suggesting Tribune is unlikely to sell itself or even a significant portion of its core holdings. Perhaps the least likely asset to be tagged for sale is the Times, he said.

"It's the company's largest revenue and profit center," Morton said. "Why would they want to unload it — regardless of whatever billionaires they have running around Los Angeles wanting to buy it?"

Deep-pocketed Los Angeles investors including Eli Broad, Ron Burkle and David Geffen are interested in buying the Times or perhaps even Tribune; Broad and Burkle recently partnered on a bid for the whole company. Reports also have circulated about some lowball bids from investors.

Perhaps notably, Tribune in the past has displayed a willingness to sell select TV assets in markets lacking a Tribune newspaper. Morton said that the Baltimore Sun could be tagged for sale by extension of a reverse logic: the closest Tribune TV station is in Washington, offering little synergy with the paper.

It also is possible that Tribune will go to the private-equity market for capital to take the company private, buying out the Chandler family in the process, the analyst said.

"Basically, when they gave the Chandlers three seats on the board, they planted a time bomb, and eventually it went off," Morton said.

"It would be the company's preference not to be cut into pieces," Thomas Weisel's Sober Quarles said.
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