Friday, September 22, 2006

to the chopping block

tribune company chief executive dennis fitzsimons has been under pressure for some time to do something about the disaster that has overtaken his company under his watch. obstinate to a fault, however, fitzsimons resisted sensible courses of action in an effort to retain as much personal power as possible, instead plunging tribco into an ill-fated debt nightmare.

now it appears that pressure has finally come to a head and cracked his reign as chief executive. tribune has formed a special board committee to make plans to break up tribco and sell off the parts. structural changes in the chandler trusts -- one of tribco's largest shareholders -- will allow the trusts to avoid an onerous tax burden that had limited movement previously.

The short timeframe suggests the company, whose revenue continues to drop amid newspaper circulation declines, will move quickly beyond the plan it outlined in May calling for a combination of select asset sales, a $2 billion stock buyback and further cost cuts.

The Chandler partnerships had been widely expected to be dissolved following negotiations between the company and the Chandler Trusts.

Instead, the Chandlers will retain 95 percent interest in the partnerships and will increase their holdings of Tribune common stock to approximately 48.7 million shares from approximately 36.9 million, Tribune said in an evening statement.

The partnerships contain some $3.5 billion in assets and have hampered Tribune's ability to make transactions because of major tax consequences.

"The restructuring of these partnerships frees the company to move quickly to pursue strategic alternatives to further enhance shareholder value," said FitzSimons.

Under the terms of the restructuring, Tribune will receive distributions of all of its preferred stock -- which currently is owned by the partnerships -- and approximately 39.5 million shares of the 51.3 million Tribune common stock held by the partnerships.

Tribune also will receive the right to acquire the real estate owned by the partnerships in January 2008 for $175 million. The partnerships currently own real estate used by the Los Angeles Times, Newsday, Baltimore Sun and Hartford Courant newspapers, and various other investments.

They enabled the Chandlers to diversify their Times Mirror holdings through a tax-free swap of family stock for company assets, but only preserved the tax benefits if they stayed intact for seven years -- a period that expired this month.

says the wall street journal:

The move effectively puts Tribune in play, and will likely prompt private-equity firms and other potential buyers to signal their interest in bidding for part or all of Tribune.

... (F)ormation of the committee is a significant reversal from Tribune's stance earlier in the summer, when the company rebuffed calls from the Chandlers to consider action such as splitting off the TV stations in favor of doing a $2 billion stock buyback and undertaking $500 million in asset sales. But since the buyback was completed, Tribune's stock has weakened.

Despite the decision to consider alternatives, Mr. FitzSimons said sale of the Los Angeles Times, one of Tribune's biggest properties, was unlikely. "The LA Times is part of Tribune and not for sale."

How much control Mr. FitzSimons will have over the process isn't clear, however. The independent committee is in charge of the process -- charged with "overseeing management's exploration of alternatives," the statement said. The committee will include the board's seven independent directors, excluding the Chandler family's three representatives and Mr. FitzSimons.

note particularly how these moves are an about-face from may, when fitzsimons -- then still managing the course of events -- attempted to catagorically deny that the cubs could be auctioned. the tribune itself is reporting that a spinoff of the local television stations is the likely outline of a first step -- and if that happens, as noted by chuck over at ivy chat, "the rationale for owning the Cubs dissolves."

there is also the possibility of taking the company private by having it assume a huge tranche of debt to buy its shareholders out and then pay down that debt by selling assets. again, chuck does the work of examining the leveraged buyout strategy -- and such a course likely results in the auction of the cubs.

this is a huge boardroom victory for the chandler family, whose plans these are and who have been pushing for exactly this course of action for months as fitzsimons instead forced through the huge leveraged stock buyback that destroyed tribco's credit rating in a fit of desperate executive narcissism. as we noted then:

in adopting the debt, this page is of the considered opinion that tribco, holder of a declining core business and woefully managed at that, would as likely as not succumb to the pressures of increased debt servicing costs and be forced to liquidate ever more assets over time -- including perhaps the cubs -- simply as a purgative to its ill-advised debt feast. as noted in the (wall street) journal, tribco has had static revenues for five years and is hardly likely to explode forward in that department; a growing cost of debt service in a higher interest rate environment isn't something tribco can likely grow out of.

and further:

how the cubs fall out of this scenario, as this page has said, is not clear -- but note particularly the line of criticism (coming from the chandlers) regarding "management's failure to maximize profits of TV stations and the Chicago Cubs baseball franchise." the team is clearly on the radar here, but as a disappointing asset -- this should be news to those many who think of the cubs as one of tribco's most invaluable properties, one which the company would never divest itself of.

it is always difficult to forecast future events, but it is the considered opinion of this page that the chandlers are now taking the lead if not essentially running the show from the boardroom; that they view both the cubs and the television stations as undesirable properties, and see debt reduction as a priority; and that therefore the team will probably either be spun off with the television unit or auctioned separately on the open market -- and probably plans will likely be announced before the year is out.

the ramifications of such a move for the team would be wide-ranging, affecting everything from its ability to tender offers in the free agent market to the continued tenure of andy macfail and jim hendry. this page will of course eagerly await the next development, as events should now move quite quickly.

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