Local investors express interest in bidding for the Tribune Co. paper amid a boardroom rift.
By Joseph Menn
Times Staff Writer
June 14, 2006
From Los Angeles Times
Could the Los Angeles Times once again be up for sale?
That question is on the minds of several of the city's richest businessmen, who reaffirmed this week their interest in bidding for the country's fourth-largest daily newspaper.
Billionaire investor Ron Burkle, former Olympics organizer and Major League Baseball Commissioner Peter Ueberroth and philanthropist Eli Broad have indicated in recent interviews or in comments to others that they would like to buy The Times or see it in local hands.
"The L.A. Times is a world-class brand," Ueberroth, a financier and former travel entrepreneur, said in an interview this week. "We're always attracted to quality brands."
Though analysts estimate that The Times could sell for about $1 billion, Publisher Jeff Johnson said the paper was not for sale. With about $1 billion in annual sales, the paper accounts for about 18% of Tribune's revenue and about 17% of operating profit.
One deterrent would be the huge tax burden Tribune would incur in an outright sale.
Yet investors and analysts said Tuesday that a rift between the paper's owner, Tribune Co., and its second-largest shareholder, the Chandler family of Los Angeles, had the potential to put The Times in play.
If that happens, the Chandlers could once again act as kingmaker. A clause in the $8-billion agreement by the Chandlers in 2000 to sell the paper's parent, Times Mirror Co., to Tribune gives the family the right to veto a sale of the flagship newspaper.
The Chandlers, who control three of Tribune's 11 board seats, are not pressing for a sale, according to people familiar with their strategy. Nor are they interested in reacquiring The Times should it come up for sale, the sources say.
The boardroom rift centers on Tribune's plan to take on more than $2 billion in new debt to buy back 25% of the company's stock. Tribune is offering to pay $28 to $32.50 a share, but the Chandlers have opposed the buyback, according to recent securities filings. Tribune has said it planned to proceed with the buyback.
That has helped drive up Tribune shares, which closed Tuesday at $31.05, down 60 cents, as investors anticipated a more dramatic restructuring.
"One has to assume that something is going to happen to Tribune," said analyst John Morton of Morton Research Inc. "Once that virus of a major change in the company gets established — and it's certainly been established in Tribune — it's very hard to get rid of it."
Analysts say a likely scenario is a spinoff of Tribune's television stations, a move favored by the Chandlers. That would leave Tribune's 11 newspapers a more affordable target for acquisition singly or in bulk."
It might open the door to dispose of the papers, and you could probably get more if they were sold as individual papers," Morton said.
Until recently, newspapers were considered more valuable in groups, because resources could be shared among them to lower costs. But Sacramento's McClatchy Co., which is buying No. 2 chain Knight Ridder Inc., has changed the conventional wisdom.
McClatchy is keeping the most profitable Knight Ridder papers and selling 12 others. By selling those in ones and twos, it has won higher sums than it paid for all of Knight Ridder. Tribune investors have paid close attention to the McClatchy sales, as have potential buyers of The Times."
The McClatchy-Knight Ridder auctions have proven there's trophy value to these big properties within local communities, and one has to assume that large shareholders are observing that," said industry analyst Kara Cheseby of T. Rowe Price, which held 4.7% of Tribune's shares as of the end of March.
Last year entertainment mogul David Geffen told Tribune Chief Executive Dennis FitzSimons he would be interested in The Times. He was rebuffed, but the sentiment has spread.
Burkle's Yucaipa Cos. investment firm had bid for the 12 orphaned Knight Ridder papers and is interested in The Times.
"Yucaipa has been interested in exploring the opportunity to purchase newspapers for some time," Burkle said in a written statement."
"The chance for the L.A. Times to be locally owned again is an opportunity that should not be missed."
Burkle and Ueberroth declined to say what recent actions they have taken, if any, and Geffen and Broad declined to comment. But people familiar with Broad's thinking said the billionaire, who made his fortune in home construction, would support local ownership, especially if nonprofit organizations were involved.
Broad broached the subject this week with Chandler advisor Thomas Unterman and was told that nothing would happen before this fall. That is when the second and larger of two investment partnerships that hold the Chandlers' stake in Tribune can be dissolved without a tax penalty.
The partnerships were set up by the family in the late 1990s before the sale of Times Mirror. In addition to stock, they contain venture capital investments and commercial real estate holdings, including the buildings that house The Times and other former Times Mirror papers, including Newsday and the Baltimore Sun.
Now the Chandlers want to take money out of the partnership without selling their Tribune shares. Such a sale could trigger a heavy tax bill.
The method for unwinding those partnerships, valued at $3.55 billion in a recent securities filing, is one of the matters in dispute between the Chandlers and other Tribune directors. Tribune has a minority stake in those partnerships. The Chandlers' investment in The Times, Times Mirror and Tribune have been held in trusts created in 1938 by Harry Chandler.
Until the last heir who was alive in that year dies, the trusts carry some restrictions, including a provision that the family keep a significant stake in The Times, according to a former Times Mirror attorney and other sources.
Those restrictions are why the Times Mirror sale included the creation of a separate board for The Times, 40% of which is appointed by the Chandlers. Any sale separating The Times from the rest of Tribune needs the approval of 75% of that board, giving the Chandlers veto power, securities filings from 2000 show.
Some experts believe that newspapers might be better off under private control, without the financial pressure of Wall Street.
Geoffrey Cowan, dean of USC's Annenberg School for Communication, said private local ownership could help The Times avoid continued cutbacks.
"People worry that economic pressures will force The Times to continue to reduce its staffing and the special features it puts out, whether it's the magazine section or the book review section or bureaus around the world," Cowan said.
One downside: Private investors with no roots in journalism could cut costs even more than traditional media companies to streamline operations before a sale.