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Tuesday, June 20, 2006

Tribune won't take tax hit to placate Chandlers, CEO says

06-20-06 02:11 PM EST
Morning Star

NEW YORK (MarketWatch) -- Tribune Co., locked in a boardroom tussle with a major shareholder, said Tuesday that it's still on track to close a Dutch-auction tender offer to buy back up to 53 million shares of its common stock next week.

Moreover, the Chicago-based media company (TRB) won't take a big tax bite to accommodate the Chandler family, according to Chief Executive Dennis FitzSimons. The Chandler Trusts are the second-largest owner of Tribune Co. stock.

During an abbreviated presentation at the annual Newspaper Association of America Mid-Year Review in New York, FitzSimons said that the tender should still close June 26. He reiterated that the buyback plan has the support of the majority of Tribune's board of directors.

FitzSimons also said that the Chandler Trusts' primary objection to the tender stems from their desire to restructure two partnerships called TMC I and TMC II, which they own jointly with Tribune Co.

The partnerships, now worth about $3.5 billion, were formed in 1997 and 1999 at Times-Mirror Co., then publisher of the Los Angeles Times, Newsday and the Baltimore Sun. The founding Chandler family wanted to diversify its holdings in a tax-efficient way.

After Tribune Co. acquired Times-Mirror in 2000, it acquired a 50% stake in TMC I and II. The Chandler Trusts wanted, FitzSimons added, to work out a way to restructure the partnerships before moving ahead with the buyback plan.

However, a restructuring of the kind the Chandlers want would create too big a tax liability for Tribune Co., according to FitzSimons. Noting that the company absorbed a $1 billion tax bill last year that was incurred by one of the partnerships prior to Tribune's buyout of Times-Mirror, FitzSimons was emphatic: "The company has no intention of assuming any further tax liability."

Tribune Co. said May 30 that it would buy back up to 75 million common shares, worth about $2 billion. Up to 53 million of the shares could be repurchased using a Dutch tender, under which stockholders can tender some or all of their holdings at a price in the range of $28 and $32.50 each.

Tribune Co.'s shares were down 12 cents at $31.81 in midday trading Tuesday.

The Chandler Trusts, which own more than 12% of Tribune Co.'s outstanding shares, objected to the plan, saying it was indicative of the company's failure to respond to fundamental challenges faced by the entire newspaper industry. The trusts recommended that Tribune either spin off its broadcasting division or pursue other alternatives, including a possible sale.

In addition to its newspapers, Tribune Co. owns 26 television stations and the Chicago Cubs baseball team, among other properties.

FitzSimons said that the Chandlers want to put their own interests ahead of other shareholders.

Management's game plan

Responding to concerns that Tribune Co.'s buyback plan will not change fundamental headwinds, FitzSimons asserted the company wouldn't have moved forward with the tender if it didn't believe that it still had businesses that "generate significant cash flow," and that it can find ways to produce improved financial results.

The chief executive reiterated that Tribune plans to improve its fortunes by making sure its content is available on multiple platforms, capitalizing on its scale by finding ways to share resources between various businesses and departments, as well as by expanding its Internet-based businesses.

So far this year, online revenue is up 28% from the first five months of 2005.

Tribune Co. expects to generate $225 million in online revenue in 2006 and to have online business account for 12 to 15% of its publishing revenue by 2010, FitzSimons indicated.

At the company's publishing division, June revenues look soft, according to Don Grenesko, senior vice president of finance and administration. As a result, the company's first-half advertising revenue looks to be about flat with that of a year earlier.

In the second half, movie ads, which have been slumping for several quarters, should be more plentiful as film studios plan a bigger slate of releases, Grenesko said. Weakness in entertainment advertising has been a particular problem at the Los Angeles Times, which represents about a quarter of Tribune Co.'s publishing revenue.

The company's cautiously optimistic that new initiatives by Chrysler (DCX) and Ford Motor Co. (F) will help spur national ad sales in the second half; so far this year, national has been about flat.

FitzSimons and Grenesko also said that the company has faith in the new CW Network, set to debut this fall as the WB and UPN networks are shut down.

Tribune refrained from the usual question-and-answer period during its presentation, citing quiet-period restrictions related to the tender offer.

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