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Monday, June 26, 2006

Tribune Stock Buyback Appears Likely to Reach Target

Los Angeles Times
By Joseph Menn and Thomas S. Mulligan
June 25, 2006

Tribune Co. is likely to succeed today in its effort to buy back as much as 25% of its stock, gaining an interim victory over boardroom critics who recently called for a breakup of the Chicago-based owner of the Los Angeles Times, KTLA-TV Channel 5, the Chicago Tribune, the Chicago Cubs baseball team and other properties. Yet the dissident Chandler family of California, Tribune's second-largest shareholder, is not expected to give up its fight.

The Chandlers, who used their three seats on the 11-member Tribune board to vote against the buyback, have publicly criticized the company's management in recent weeks.

They attracted little public support for their campaign, but if the buyback goes through, the Chandlers will become the company's largest single stockholder.

And some investors predict that, with Tribune's tender offer expiring tonight, the family will begin sitting down with big shareholders in an attempt to form alliances that could reinvigorate the fight over Tribune's turnaround strategy. 'I've been sort of surprised that they haven't contacted me,' said one large stockholder, who requested anonymity.

A spinoff or other breakup plan 'is where the institutional holders and the Chandlers sort of get on the same page,' said another person involved with the opposition to Tribune's plan who asked not to be identified. 'The question is, are there people out there with significant chunks who are willing to line up behind them, and more important, do it publicly?' said a smaller Tribune stockholder who also asked not to be named. 'That's what it's all about.' Some shareholders who support the buyback agree with the Chandlers' assessment that the company would be worth more in pieces than whole. Among those who believe Tribune could do more to increase shareholder value is John Miller of Ariel Capital Management, which is Tribune's sixth-largest shareholder. Ariel has been supportive of the company thus far, and Miller called the share buyback 'an important first step' in a long-term recovery plan for Tribune. But he said it was only a first step.

Analysts say a public alliance of the Chandlers and other investors could lead to a rival slate running for the board.

Another option for the Chandlers, analysts suggested, is to endorse a major transaction with a specific outside party, such as one of the private investment firms that have inquired about buying some or all of the television business. The family also might simply disclose more about the interest it has received for other properties, whetting shareholders' appetite for asset sales. A number of Los Angeles financiers, including Eli Broad, Ron Burkle and David Geffen, have recently discussed a potential multibillion-dollar bid for The Times, according to people briefed on those talks who asked not to be named because the discussions are confidential. If such a bid materialized, it would probably be a joint effort, the people said. 'Burkle and Geffen are neighbors, and either could write a check for The Times,' one said. 'They are not going to get into a bidding war.' In Baltimore, where Tribune owns the Baltimore Sun, the Abell Foundation, which is tied to the former owners of the paper, expressed interest this month in a joint bid if the property becomes available.

Without some new alliances, the Chandlers' effort probably would come to an end, investors said, even though a successful buyback would make them the single largest Tribune holder.

Under the buyback, Tribune's largest shareholder would cash in shares.

The buyback has three phases. In the first, ending tonight at midnight Eastern time, shareholders can tell Tribune at what price they would be willing to sell their shares between $28 and $32.50. The stock closed Friday at $31.34, so many holders could be willing to sell at $32.50. Tribune will pay the lowest single price per share it can to collect as many as 53 million shares through the so-called Dutch auction.

It will then pay the same per-share price for an additional 10 million shares owned by the McCormick Tribune Foundation, a charity governed by Tribune top management and former executives that owns 13.6% of the Chicago media company's stock.

Finally, Tribune can buy 12 million more shares on the open market starting next month. Tribune plans to announce the result of the Dutch auction Tuesday morning.

The Chandlers, who hold about 12% of the stock, acquired the stake in 2000, when the family sold its control of The Times and its parent, Times Mirror Co., to Tribune.

In recent weeks, they have complained that the buyback should have taken a back seat to a spinoff of Tribune's 26 TV stations or another strategic move, such as the sale of some or all of the company's 11 newspapers.

But the Chandlers also have another agenda. Many of their Tribune shares are held through two investment partnerships jointly owned with the company. For tax reasons, they wanted those partnerships unwound before the buyback. Tribune Chief Executive Dennis J. FitzSimons has treated the Chandlers 'as sort of an irritant' instead of a serious obstacle to his plans, said independent analyst John Morton. He said FitzSimons had been able to do so in part because he had behind him a bloc of eight directors, mostly 'close-knit Chicagoans.' 'If a horde of institutional investors joined the Chandlers, that might force the other eight to reconsider, just out of fiduciary duty,' Morton said. FitzSimons hasn't ruled out a spinoff of Tribune's TV properties, but he and some big investors first want to watch the performance this fall of the CW, a new network tying 16 of the stations together. A strong start could enhance their value, just as a poor season could hurt it. Noting that Tribune has also announced plans to sell 'non-core' assets to help pay down $2 billion in debt incurred in the buyback, Larry Grimes, a Maryland-based newspaper broker, speculated that the company's Spanish-language publishing division, including the newspaper Hoy, could go on the block. Tribune 'could recapture through existing products' the readers it would lose in such a sale, he said.

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