Stop the presses

A plan by the second-largest shareholder group in the owner of the Los Angeles Times may put a number of assets up for sale—and into the hands of private equity investors. Aaron Lovell investigates.

A move by a large shareholder in Chicago-based newspaper and television group Tribune Company may create a number of distressed opportunities for cash-flushed private investors. The Chandler family, the second largest shareholder in Tribune with 12 percent of the company’s stock, has asked the conglomerate to sell off assets or let itself be acquired before the end of the year.

In the letter, which was filed with the Securities and Exchange Commission last week, the Chandlers say that the strategy for the merger of Tribune with their Time Mirror company in 2000 “has failed.” The letter goes on to say the family no longer has faith in the company’s management. 

The groups merged with the idea of merging Chicago-based Tribune’s newspaper and television assets, including the Chicago Tribune and television station WGN, with those of Time Mirror, including the Los Angeles Times and Long Island-focused newspaper New York Newsday.

But the plan never gelled. In the last two years, the Chandlers point out, Tribune stock has sunk 38 percent, with the newspaper group’s value declining almost 9 percent and the broadcast group dropping 29 percent.

But the Chandler family’s plan to sell off assets could create a number of opportunities for quick-witted distressed investors. For example, the trust has suggested a complete separation between the newspaper and broadcast divisions via a tax-free spin-off. “Among other things,” the letter reads, “management should diligently explore the possibility of arranging for a major private equity firm to make a significant investment in the television company and act as its ‘sponsor.’”

The group continued, suggesting a similar course of action for the company’s remaining assets: “Tribune should begin promptly exploring other strategic alternatives, including breaking up and selling, or disposing in tax-free spin-offs, some or all of its newspaper properties, or alternatively, the possibility of an acquisition of Tribune as a whole at an attractive premium.”

In the letter, Morgan Stanley estimated the company’s newspaper assets, which include the papers in the three largest US markets, as being worth around $9.5 billion (€7.5 billion) on the private market, assuming a 10 times multiple of the division’s 2006 earnings before inflation, taxes, depreciation and amortisation. Last year, the newspaper division had an EBITDA of $950 million.

The letter also estimated that the broadcast division had a value of around $4.8 billion, while the Chicago Cubs baseball franchise was valued at $450 million.  

The assets could be of interest to private equity firms, particularly considering the recent activity in the newspaper market. Earlier this year, McClatchy & Co paid $4.5 billion (€3.7 billion) for Knight Ridder’s portfolio of 32 papers, with plans to sell around 12 of the papers, including high-profile organs like the Philadelphia Inquirer, the Philadelphia Daily News, the San Jose Mercury News and the St. Paul Pioneer Press.

So far, the chain has sold off eleven of the 12 assets, picking up an estimated $2 billion to go towards paying down debt from the purchase of the Knight Ridder chain. Only the Times Leader of Wilkes-Barre, Pennsylvania is still on the auction block.

Even the distressed Chicago Cubs, a baseball team that retains a loyal following despite not winning the World Series since 1908 and currently sitting second-to-last in the National League’s Central Division, could possible see a new owner in the unlikely event that Tribune Company sells the team. It wouldn’t be unheard of – Los Angeles-based Colony Capital recently teamed up with a consortium of private equity firms to purchase football team Paris-St. Germain for €41 million ($49 million).

In any case, in the unlikely case that Tribune Company executives listen to their disaffected stockholders, the market may see a number of attractive opportunities come to market before the snow flies in Chicago.