Thursday, November 02, 2006

the cubs are on the market

a lot of anticipation is over -- the cubs are unofficially for sale.

With bids for the mammoth Tribune Co. coming in far lower than expected, the media giant is telling prospective bidders that individual pieces are now available for sale, according to published reports.

Tribune Co. representatives made a series of calls Wednesday signaling their new intention to those who have expressed interest in the company's individual holdings, according to unnamed sources cited Thursday in the Chicago Tribune, the Los Angeles Times, The Wall Street Journal and The New York Times.

... investors have shown the strongest interest in the company's individual units, including the Los Angeles Times, Newsday, The (Baltimore) Sun and The Hartford Courant, the report said.

as reported in the new york times, however, this is not necessarily everything that one can hope for.

(S)ales of individual assets by Tribune is not a foregone conclusion. Such sales could cause substantial tax consequences for the company.

Another option for Tribune would be to take itself private, which could create substantial debt. That could involve selling off some of the smaller newspapers and perhaps the television group as a whole to finance the deal, leaving a core company with major assets like The Los Angeles Times, The Chicago Tribune and the Cubs.

Those involved in the process said yesterday that the next step would be to open up a data room where bidders could examine the company’s books in detail. Only a book with sketchy details was available until now.

One person involved cautioned that at this stage of such auctions, companies sometimes say they are disappointed with early bids in order to increase them. Another said that the bids were low for a reason. “These are difficult businesses in troubled times and they are all underperforming,” he said of many newspapers.

this process has, as predicted, spiralled well beyond the control of tribune executives like dennis fitzsimons, who it seems clear hubristically overestimated their position. what was once a poorly conceived stock buyback has become the pending complete disintegration of the company. tribune has little say now over which assets will be dealt -- the market is what will determine what can and will be sold, and the market is telling us now that some local papers and broadcasting stations can go to smaller individual bidders. certainly it seems reasonable that high-growth properties like and the food network may receive interest as isolated units as well.

the tax implications of the sales of assets is a point to be considered but certainly not a deal-breaker -- tribco will be able to foot almost any tax bill out of realized capital gain. from a tax perspective, the stickiest property may be, ironically, the los angeles times.

One of the reasons Tribune management has been reluctant to sell the Los Angeles Times, despite the heavy interest, is because its tax basis in the paper is so low. To make up for a heavy capital-gains bill, Tribune would have to get a price well above what the market would bear to make a straight-ahead sale worthwhile.

The person contacted by Tribune's investment banker said the only way to do a deal would be a tax-free spinoff.

According to one large Tribune shareholder, such a deal would require Tribune to spin the paper off into a separate company owned by existing shareholders, perhaps valued at 10 to 12 times cash flow, or as much as $2.8 billion. That company could then borrow about half its worth from banks or other lenders and use that money to pay shareholders a fat, one-time dividend. At the same time, a buyer would buy 49 percent of the company and the money would be used to retire the debt. Finally, after the tax implications expired in a couple of years, the buyer would acquire the rest.

The same sort of deal has been contemplated for Tribune's television stations, which Goldman Sachs valued at $3.5 billion to $4 billion earlier this year. Goldman valued the total newspaper assets at a high of $8.3 billion and the radio and entertainment assets--including the Chicago Cubs--at $603 million. Including all of Tribune's assets and less its debt, Goldman valued the company at around $10 billion, or $39.70 a share.

what of the cubs? again, it's very hard to say -- without a bid, the team can't be sold. but today's news will provoke those who have seriously mulled buying the cubs to put their proposal together and submit a bid. make no mistake -- the cubs are on the market, even if tribune execs try to deny it or even genuinely believe the team won't be divorced from the local media group. they simply aren't calling the shots unilaterally from a position of strength anymore -- the whole process has moved well past that more orderly stage.

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