Thursday, June 08, 2006

Trials, terrors and Trib-ulations

The $2 billion kitty being raised to mollify restive Tribune Co. shareholders eventually could lead to the break-up of the second iconic publishing company in as many years.

With Knight Ridder only weeks from its date with the history books, the struggle to soothe disgruntled Tribune shareholders could result not only to the sale of a few TV stations or the 23-36 Chicago Cubs but the liquidation of the entire company.

"The end game is to sell this company," analyst Edward Atorino of Benchmark Capital told Reuters in his interpretation of the opposition of the Chandler family, which owns 12% of Tribune, to the publisher's plan to purchase shares worth up to 25% of the company from investors unhappy with the recent performance of the stock.

The announcement that Tribune plans to borrow a hefty sum to fund the share buyback – and the subsequent revelation of the boardroom imbroglio – was sufficient to raise the price of TRB by some 5% since May 30 to close today at $31.58.

As reported in the Wall Street Journal, the issue chafing the Chandlers, who hold 3 of 11 board seats, is that Tribune’s management failed before announcing the buyback to restructure some real estate partnerships so as to reduce the tax bite on the wealthy family that sold the Los Angeles Times to Tribune Co. in 2000.

“The Chandlers raised concerns about the plan at a late-May board meeting, and pushed with their adviser, Goldman Sachs, to get the partnerships restructured before the Tribune's recapitalization,” said the Journal in quoting anonymous sources. “But Tribune's board and Chief Executive Dennis FitzSimons decided to press ahead anyway, arguing that the company didn't want to miss out on current favorable financing markets and interest rates.”

Ed Atorino and others believe the open disagreement between the Chandlers and management may cause other unhappy shareholders to coalesce into a movement to break up the company in the same way that dissatisfied stockholders last fall prodded a reluctant Knight Ridder to the auction block.

Ironically, Knight Ridder was forced to sell its newspapers because management essentially did nothing (other than nip and tuck costs here and there) to placate investors who were lobbying for a stock buyback, asset sale or similar dramatic feat to boost shareholder value.

In its effort to curtail the bad karma brewing among several of its investors (who in some cases are the very institutions that put KRI in play), Tribune inadvertently may have unleashed the first of a cascade of events that could result in a clamor for the sale of all its assets. Only time will tell.

But the question that disgruntled investors should ask themselves is: What if they held an auction and nobody came?

When KRI went up for sale, only McClatchy and a single coalition of private-equity investors bid for its assets. Since the day McClatchy emerged victorious, its shares have been punished unmercifully by the stock market, closing today at $44.26, or 16% lower than on the day before the KRI deal was announced (to the dismay of investors like me).

If that’s what happens when one well regarded newspaper company buys another respected publisher, who’s going to step forward to buy the Tribune’s assets? Unless…

If Tribune management could divert some of its attention from boardroom tussles and the intricacies of overhauling the balance sheet to borrow two billion bucks, it might be able to concentrate on the actual business of publishing prosperous newspapers and operating successful local TV stations. (As you may have heard, those valuable franchises are periled by everything from Craig’s List and Google News to YouTube and Internet access to prime-time shows.)

If Tribune’s able managers could get their priorities straight, they just might improve operating performance to the degree that their company became irresistibly appealing. The stock would rise, investors would get gruntled and the company wouldn’t have to be sold.

What a concept.