Several pieces in Tribune's puzzle

Price tag may be high for full sale

Increasingly, the question 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 proven particularly synergistic for their present owner. But at least one formal offer for the whole enchilada already has surfaced, and some say bidders may 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 for $8.3 billion in 2000 ? 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 back then said the exploration of alternatives was "consistent with our overall objective to generate the most value for all Tribune shareholders."

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

"The sale speculation has obviously boosted the shares," said Thomas Weisel Partners analyst Christa Sober Quarles. "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, television stations and Web sites in the nation's top three markets.

In addition to the 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 the Chicago Cubs baseball team. A group of investors has been lining up financing for a possible purchase of the Cubs, estimating the club's value at about $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 due to anxiousness over lingering grey 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 would ultimately have to account for a big tax bill attendant to such an approach, Jadwin said.

John Morton, a well-known 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. And 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 L.A. 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 that Tribune, without public comment. Reports also have circulated about some low-ball bids from the investment community.

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

It's also possible 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 timebomb, and eventually it went off," Morton observed.

"It would be the company's preference not to be cut into pieces," Thomas Weisel's Quarles stressed. "They want to avoid people cherry-picking the best assets, which could leave them with something that they couldn't sell."

Still, select newspaper assets could get sold off by Tribune prior to a larger sale, because local interest in certain holdings runs so high, she added. Should the Times, with its complicated history and special cache in the region, fall into that category, observers see the paper fetching roughly $2 billion.

There's also some chance the Gannett media group or another interested party might find sufficient value in individual TV or newspaper assets to forge a compelling bid that Tribune "can't ignore," Quarles said.

In almost any scenario other than the broadest sell-off of individual Tribune assets, whoever ends up with the lion's share of Tribune's media holdings is likely to inherit its nettlesome integration challenges. Yet Alexander Dunham's Jadwin sees a potential ray of hope for such an acquirer.

"In difficult industries, major shifts in leadership and/or ownership are very often a great catalyst for recovery and value creation," he said.

The key word could be"often," of course. For most agree that the history of Tribune offers ample evidence that change alone is no guarantee of a greater good.