Monday, June 12, 2006

Rise in stock price imperils Tribune buyback plan
June 12, 2006

Obviously, nobody is going to sell stock at a lower price.

A sharp increase in the stock price of Tribune Co. has raised doubts as to whether the company will be able to complete a tender offer for about 25 percent of its shares if the rise continues, analysts said.

Shares of Tribune, which owns Newsday and other newspapers and television stations, closed at $31.96 Friday, up 14.6 percent over the nine trading days since Tribune announced the $2-billion offer on May 30. Of the 75 million shares it wants to buy, the company plans to repurchase up to 53million for a price ranging from $28 to a maximum of $32.50 in a so-called Dutch auction.

In a Dutch auction tender offer, a company says it will buy stock within a given price range, and after receiving investors' responses, it offers the highest price necessary to acquire all the shares it wants.

Tribune stock rose as high as $32.38 at one point Friday. If it is above $32.50 on June 26, the closing day for the auction, 'it means one of two things - [the buyback] doesn't get done, or they've got to raise the price,' said Edward Atorino, a media analyst at the Manhattan brokerage Benchmark Co. 'Obviously, nobody is going to sell stock [at a lower price].'

Investors who had already tendered their shares at a lower-than-market price wouldn't get stuck at that level because they can withdraw their offer up until midnight June 26 unless the offer is extended, according to documents Tribune filed with regulators. Tribune also can withdraw the offer under certain conditions, including a decrease of more than 10 percent in the shares' market price from the time the offer began.

The run-up in Tribune stock is thought to be at least partly due to opposition to the buyback plan by the Chandler family, Tribune's second-largest shareholder, with about a 12 percent stake in the company. There have been reports that private equity firms have approached the family about a possible takeover offer.

'That kind of speculation, it's like a virus,' said industry analyst John Morton, of Morton Research. 'Once it's in there, it's very hard to get rid of it ... You've got some investors out there who are always trying to sniff out the next big takeover, because in a takeover, ordinarily there's a premium paid over what the market price is.'

There also have been reports that Tribune may spin off its TV stations - a development that The Wall Street Journal said Friday could lift the stock by 42 percent. Based on Thursday's closing price, that would result in a $44.84 price for Tribune stock.

Ivan Feinseth, research director for Matrix USA, a Manhattan-based financial services company, said Friday that he 'disagrees strongly' with such a stock price prediction in the event of a company breakup. 'I don't think there's that much value in the two companies,' he said, referring to Tribune's newspaper and television units. 'And I don't think this continued separating of companies unlocks any value.'

In an ironic twist, the tender offer not working out still might end up being good for Tribune, which had planned to incur up to $3.4 billion in financing costs for the buyback, analysts said.
'One intended effect of this stock buyback was to increase earnings per share so the stock would go up and calm restive institutional shareholders' who were upset about Tribune's languishing stock price, Morton said.

'... So far, they've achieved that [a rise in the stock price] by just talking about it, really.'
Feinseth said that with the offer, Tribune has in effect set a 'floor' for its stock price. An investor would say, ''I can buy the stock at $29, and hopefully it goes up, and if it doesn't, I figure at some point they'll tender [again],'' he said.

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