Tribune Media Stock Jumps as Company Explores Sale or Separation of Assets, Other Options

Peter Liguor - Getty - H 2016
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"Tribune's assets are valuable, powerful and performing well," says CEO Peter Liguori. "However, it's our belief that our current stock price does not reflect the full value of these assets."

Tribune Media, the entertainment company that was created by the 2014 split of Tribune Co., on Monday reported its latest financials and said it would explore asset sales, spinoffs and other strategic alternatives amid a weak stock price.

"The strategic and financial alternatives under consideration include, but are not limited to, the sale or separation of select lines of business or assets, strategic partnerships, programming alliances and return of capital initiatives," the company said. "The board of directors and the company have retained Moelis & Co. and Guggenheim Securities as financial advisors to assist in this process."

Said chairman Bruce Karsh: "The board of directors and management remain focused on maximizing shareholder value. We believe that the value of the portfolio of businesses of Tribune Media is not fully reflected in the stock price and intend to explore ways to unlock value by reviewing strategic alternatives. At the same time, we remain committed to achieving strong operational performance across our businesses."

Added president and CEO Peter Liguori: "Tribune's assets are valuable, powerful and performing well, as reflected in our full-year 2015 operating results. However, it's our belief that our current stock price does not reflect the full value of these assets. With the help of outside advisors, we have decided to initiate a process to explore every possible strategic and financial option with one clear goal: to unlock the value of our stock."

The company — whose assets include 42 local TV stations, the WGN America cable network and such digital businesses as music and video recognition software firm Gracenote after the spinoff of Los Angeles Times owner Tribune Publishing — has seen its stock drop about 50 percent over the past year. Over the last 52 weeks, the stock has traded between $26.10 and $64.99. On Friday, it had closed at $31.44, giving the company a market value of $3.1 billion.

Tribune’s stock price closed Monday with a gain of 9% to $35.90.

Tribune Media said that it "has not set a definitive timetable for the completion of its review of alternatives and does not currently intend to make any further disclosures regarding its exploration of alternatives until such time as any definitive agreements may be entered into in the process or as otherwise appropriate or required."

Analysts said Tribune Media could spin off or sell Gracenote, sell WGN America or sell some or all of its TV stations, for example. "There are lots of possible purchasers for real estate and broadcast properties," said former entertainment industry analyst Hal Vogel. "So they shouldn't have a problem in finding a buyer."

Said Jefferies analyst John Janedis: "Longer term, we think that management would consider the sale of certain non-core assets, including Gracenote, as well as its equity stakes in the Food Network and CareerBuilder. In our sum of the parts, we value these assets at $400 million, $980 million and $300 million, respectively." Possible buyers mentioned include Scripps Networks Interactive and Tegna.

The company also said on Monday that it has entered into new and amended employment agreements with three top executives. Liguori has signed a new two-year employment agreement. The company also named Chandler Bigelow executive vp and CFO and expanded the scope of responsibilities of general counsel Eddie Lazarus by naming him chief strategy officer.

The company also said that it would continue its previously announced plans to make money off its real estate portfolio, including the Tribune Tower in Chicago and the north block of the Los Angeles Times Square property in Los Angeles. "In 2016, the company has broadened this sales activity to include numerous other properties and has accelerated the monetization of these assets to take advantage of accommodative market conditions, although there can be no assurance that any transactions can be completed in a timely manner, on favorable terms, or at all," Tribune Media said.

The company posted a fourth-quarter loss of $380.9 million, compared with a year-ago profit of $314.7 million. The company recorded non-cash impairment charges of $385 million at its Television and Entertainment unit for the lower value of its businesses and a non-cash broadcast rights impairment charge of $74 million related to the writedown of the acquired syndicated shows Person of Interest and Elementary at WGN America in 2015.

Excluding the charges, quarterly earnings hit 63 cents per share, beating the 55 cents Wall Street consensus expectation. Liguori explained that the charge for the syndicated cable shows came as they were bought in 2013 at "extremely attractive prices," but the cable syndication market has since changed.

The company's operating loss was $382.2 million for the fourth quarter, while operating profit before impairment of goodwill and other intangible assets came in at $2.8 million, compared with a year-ago operating profit of $163.4 million.

Quarterly revenue dropped 1 percent to $547.6 million, with core advertising revenue, excluding political advertising, up 2.6 percent. Including political, ad revenue was down. The company posted a 27 percent increase in retransmission consent revenue and a 58 percent increase in carriage fee revenue "related to higher rates for WGN America distribution."

The company also announced on Monday that it has authorized a new $400 million stock buyback program.

In its annual report filed later on Monday, Tribune Media also mentioned that it has identified financial reporting control concerns. "In connection with management's assessment of the company's internal control over financial reporting as of December 31, 2015, management identified a number of deficiencies related to the design and operating effectiveness of information technology general controls for information systems that are relevant to the preparation of the company’s consolidated financial statements, which, in the aggregate, constituted a material weakness," it said. "A material weakness in internal control over financial reporting is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis."

It added: "The company has developed a plan to remediate these deficiencies, but there can be no assurance as to when the remediation plan will be fully implemented, or that the plan, as currently designed, will adequately remediate the material weakness."

On the Tribune Media earnings conference call Monday, Liguori said he was bullish on the company's "vibrant assets" that are "currently undervalued" and their financial outlook.  

He said the company also remains committed to original series on WGN America despite the recent cancelation of Manhattan. He said the show was good and had a loyal audience, but “not enough people watched.” He called the decision to end it a “tough business decision.”

Overall, he predicted that WGN America would have four original shows "not any time too soon," with management focused more on carefully building successful originals rather than shooting for a specific number of them.

Meanwhile, new drama Outsiders, set in Appalachia, is a hit by any measure, he said, touting its early ratings before highlighting the March 9 debut of another new drama, Underground, about a group of slaves who plan a daring escape from a Georgia plantation.

Asked if WGN America was off the table in the review of possible asset sales, Liguori said on the call that the review "includes each and every option."

The CEO was also asked why the company had decided to review options now after having previously also spoken of an undervalued stock price. The decision "was not tied to anything specific other than now is the time," he said.