Los Angeles Times
By Jerry Hirsch and James Rainey
June 15, 2006
The prospect of a breakup of Chicago-based Tribune Co. and its 11 daily newspapers and 26 television stations would draw intense interest from potential buyers despite skepticism among many investors about the value of traditional media. Several media analysts said that if the Chandler family succeeded in forcing a Tribune breakup, it was far more likely the company would be sold off piecemeal rather than to one or two buyers.
That's because the larger individual assets - including the Los Angeles Times, KTLA-TV Channel 5 in Los Angeles and the Chicago Cubs baseball team - are likely to draw interest from local and regional buyers who view them as trophy properties. On Wednesday, representatives of the Chandlers called for a sale or breakup of the company, calling Tribune's 2000 acquisition of Los Angeles-based Times Mirror Co. a failure. Tribune executives dismissed the suggestion, adding that the company 'has a great future.' The sum of Tribune's multiple parts is worth the equivalent of $43 a share, according to estimates by Steven Barlow, an analyst at Prudential Equity Group. That compares with the $31.94 closing price of Tribune shares Wednesday. The conventional wisdom has been that traditional media such as newspapers and television are losing propositions - profitable today but quickly losing their audience and advertising revenue to the Internet.
'But there are a minority of thinkers who believe that well placed, financed and managed brand-name properties will be here for the long term, and some of the Tribune stations fit that category,' said Rick Michaels, chairman of Communications Equity Associates in Tampa, Fla. The same is true in the newspaper business, newspaper analyst John Morton said. 'Even metropolitan newspapers, with their problems, are more profitable today than most other businesses,' Morton said. 'And that makes them attractive at some level. If the Tribune papers become available, individually or as a group, they will be highly attractive to someone, including other newspaper companies.' The allure of Tribune's publishing and broadcast arms is likely to vary by market. Big city television operations generally would be more attractive, whereas newspapers in those markets face growth challenges and competition from mostly free online classified advertising services such as Craig's List. Tribune's major-market TV stations - WPIX Channel 11 in New York; KTLA in Los Angeles and WGN Channel 9 in Chicago - probably would be most attractive to private equity funds - pools of investment money that finance acquisitions - that have subscribed to the idea of 'brand name' value and already are players in several recent media purchases, Michaels said.
'A consortium of these large equity groups would probably be eager to purchase these stations and would probably pay a premium over a strategic buyer such as a network,' Michaels said. Those stations 'are household names in TV and the private equity and hedge funds are flush with money right now.'
The major networks probably would shy away from Tribune's broadcast portfolio. Additional properties would put some of the networks over a regulatory threshold that limits the reach of their station ownership to no more than 39% of U.S. households.
One scenario would be for the funds to purchase all the stations, keeping what Michaels called 'the pearls' and selling off smaller-market operations. That scenario is similar to how McClatchy Co. purchased and broke up the Knight Ridder Inc. newspaper chain. Michaels said that among the funds interested in Tribune's broadcast operations could be Providence Equity Partners, Spectrum Equity Investors, Texas Pacific Group and Oak Hill Capital Partners.
Some are already nibbling in the media sphere. Providence and Texas Pacific own a combined 50% of Metro-Goldwyn-Mayer Inc. Spectrum controls Classic Media Inc., owner of a stable of famous TV and cartoon characters including Lassie, the Lone Ranger and Casper the Friendly Ghost. As for Tribune's newspapers, analyst Alan D. Mutter said prospective buyers might be interested in using a purchase to increase their political clout or to maintain local ownership.
'We could be moving into an era where newspapers started - with wealthy individuals who had something to say, an itch that needed to be scratched,' Mutter said.
Hugh J. Martin, an assistant professor of journalism at the University of Georgia, said he expected that even the nation's biggest newspaper company, Gannett Co., would consider adding Tribune papers that would be close to its current newspapers.
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