Friday, June 16, 2006

Tribune debt is rated 'junk'
June 16, 2006

Yet, something probably should be done.

As Wall Street apparently cheered the boardroom dustup at Tribune Co. by further lifting its share price, the Chicago-based owner of Newsday and other media properties yesterday saw its debt rating lowered to 'junk' status by Moody's because of concerns about a stock buyback plan.

A day after the Chandler Trust, a 12-percent owner of Tribune, cited management's 'failed' growth strategy in calling for a strategic breakup or sale of the company, once-moribund Tribune shares continued to climb, gaining 57 cents to close at $32.51 yesterday.

Tribune, in a statement Wednesday, challenged many of the assertions in a Chandler letter calling for the breakup, and said a majority of the board favored a stock buyback program and an 'aggressive performance improvement program.' That plan includes continued expansion of Internet properties, the sale of some $500 million in 'non-core' assets, and additional cost cutting.

In a letter to the Chandler Trust yesterday, Tribune's independent directors, led by audit committee chairman William Osborn, disputed elements of the Chandler letter. 'We completely reject your assertion that the action of Tribune's Board in authorizing the tender offer was 'hasty and ill-informed,'' Osborn wrote.

The letter said the board carefully considered alternatives proposed by the Chandlers, and opted for management's strategic plan. 'The independent directors are confident in management's ability to execute on this strategic plan,' he wrote.

Analysts who track the company expressed optimism that the public and acrimonious board battle would spur changes and lift the share price more.

'We are encouraged that a more dramatic course of action is being undertaken,' analyst James Goss, who tracks Tribune at Barrington Research in Chicago, wrote in a note to investors yesterday.

At the same time, he and others appeared to stop short of agreeing with the Chandler Trusts' plan for the company, which includes splitting the broadcast properties from the newspapers in tax-free spin-offs or pondering the sale of the entire company. 'I'm not sure blowing the company up into a million pieces is the best way to go,' Goss said in an interview. 'Yet, something probably should be done.'

Also encouraged by the prospect of change, Credit Suisse First Boston yesterday raised its rating on Tribune stock from neutral to outperform, citing the Chandler proposals.

'We believe the Chandlers' inside control and board representation makes it more likely than not [that] something materializes,' Credit Suisse analyst Debra Schwartz wrote in a note to investors, referring to a breakup or sale that could lead to a 'significant' increase in Tribune's share price.

But not all the news was good. Moody's Investors Service lowered its rating on about $5 billion of Tribune debt one notch to 'junk' status, citing the company's plan to buy back up to 25 percent of Tribune shares in a plan to increase shareholder value, which the Chandler Trust opposes.

Moody's move follows downgrades by Standard & Poor's and Fitch Ratings. Moody's expressed discomfort with the buyback program's increase in Tribune debt against measures such as adjusted free cash flow.

Even as Tribune moves ahead with its plan, the dissident shareholders are expected to begin making their case to other institutional holders. 'They have to get some allies' before pondering a next step such as a proxy fight, said Ed Atorino, who tracks Tribune at The Benchmark Co., an investment firm in Manhattan.

Atorino added that the support may very well be there: 'I've heard there are some large institutions who are considering their [the Chandlers'] proposals.'


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