Goldman upgrades Tribune

By David B. Wilkerson, MarketWatch
Last Update: 11:47 AM ET Jun 9, 2006

CHICAGO (MarketWatch) - Goldman Sachs weighed in on the battle over Tribune Company on Friday, upgrading the newspaper publisher's stock on the expectation that a shareholder push for some kind of restructuring will succeed.

At the same time, analyst Peter Appert downgraded Dow Jones & Co. (DJ) and New York Times Co. (NYT) to underperform from in-line, saying that "industry fundamentals will likely remain challenging" for the news publishing companies.

In an attempt to lift its stock price -- which going into this week had lost nearly half its value since early 2004 -- Tribune (TRB) 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-auction tender offer, under which stockholders can tender some or all of their holdings at a price in the range of $28 and $32.50 each.

Tribune's board of directors has also discussed the possible spin-off of its broadcasting group, according to filings with the Securities and Exchange Commission.

Appert says it's unlikely that many strategic buyers would be interested in Tribune in its current form, with its 26 television stations and such newspapers as the Chicago Tribune, Newsday and the Los Angeles Times. He added that a sale of the broadcast division might not create "meaningful value creation," since companies that own significant numbers of TV stations, such as Hearst-Argyle Television (HTV) and CBS Corp. (CBS) "do not trade at significant multiple premiums to TRB's current valuation."

Appert estimates that Tribune would be worth a price in the upper-$30s range in a break-up or leveraged buyout scenario. The company's current debt level, which will go up when it executes its tender offer, make a leveraged buyout "difficult to justify," the analyst told clients.

In Appert's view, the most likely possibility is that Tribune pursues further financial restructurings, along the lines of the Dutch tender. These could include raising its dividend, or "select asset sales," a process the company has already begun.

As part of a plan to sell at least $500 million in non-core assets outside of its three largest markets, Tribune earlier this week announced the sale of an Atlanta TV station to Gannett Co. (GCI) for $180 million.

Appert said it's not clear why the Chandler Trusts, which own more than 12% of Tribune shares, object to the company's buyback plan, a development that has led some to wonder if other shareholders will call for a more dramatic action on the part of the company.

Tribune said that while eight directors approved the repurchase strategy, Jeffrey Chandler, Roger Goodan and William Stinehart Jr. of the Chandler Trusts dissented. Tribune said in a statement that it would not comment on discussions between board members.

In downgrading Dow Jones -- the parent company of MarketWatch -- and New York Times, Appert pointed out that those companies have dual classes of stock and large family ownership stakes that prevent other shareholders from forcing asset sales or other actions. For this reason, he said, "we would not expect DJ or NYT to benefit from upside in the group driven by the expectation of further industry restructuring."

Tribune shares were up 71 cents, or 2.25%, to $32.29; New York Times was down 75 cents, or 3.1%, to $23.29; and Dow Jones was down 13 cents, or 0.4%, at $33.74.