Tribune Puts Up a “For-Sale” Sign
Important Details: In one statistic, you can feel the pain of the Tribune Company and the newspaper industry overall. Back in 2000, when times seemed optimistic, the Tribune swallowed Times Mirror, vaulting itself into becoming a national newspaper company. It paid $8 billion (including debt assumption) for Times Mirror. The deal included the flagship L.A. Times, Newsday, five other significant dailies and a half a dozen magazine titles.
Tribune’s overall market cap — buffeted by poor valuations of newspaper companies in general — now stands at $8 billion. Officially, the Tribune has now set up a "Value Creation Committee", to assess and pursue strategic options. Further it announced over the weekend that it had hired Merrill Lynch and Citigroup as financial advisors to help it explore strategic alternatives. Among those alternatives, CEO Dennis Fitzsimons said — for the first time — that selling the company whole was the number one alternative.
It’s all entirely reminisicent of the forced Knight Ridder sale, first pushed by dissident shareholders last November and finalized in June. It has also brought to reality the great possibility that both Knight Ridder and Tribune — two of three of the largest, best-known and highest quality U.S. newspaper companies — could both cease to exist within less than a two-year period.
The action follows months of intrigue. It began when the Chandler Trusts — the Chandler family had built the L.A. Times into a major property and then expanded Times Mirror into a significant publisher — made it clear it wanted to increase the value of its then-15% stake in Tribune, gained in the 2000 sale. It took the summer to re-structure several agreements between Tribune and the Trusts, which now own 19% of the company. Now that work is done, both allowing an easier sale of assets and providing new impetus to do so.
It was a busy summer for Tribune — in addition to the Chandler Trusts restructuring, it staged a stock buyback, which was under-subscribed. It sold three TV stations, leaving 25 in the fold. It saw its CEO Fitzsimons undergo successful prostate cancer surgery . And it made several reports of overall declining revenues. Then as summer ended, a newspaper rebellion took root. Initially it was led by the L.A. Times publisher and editor, who publicly refused to make more job cuts demanded by their corporate overseers. That rebellion was joined last week as more than a hundred Baltimore Sun staffers issued a similar statement, underlining concern that further job cutbacks were doing damage to the fabric of the newspaper. Testament to the depth of his predicament, Fitzsimons didn’t fire his troublesome L.A. leadership, but just invited them to Chicago for a chat.
Such is the way of the news industry world these days. Buffeted by at-best flatlining print ad revenues, the acceleration of circulation decline, the massive movement of younger readers to online and good, but not spectacular growth, at their own online sites, news company CEOs are in terra incognito.
To that expect, Tribune’s woes are the same as the rest of the industry’s. What makes it stand out these days are these factors:
- It’s a single-class public company in an industry moving more greatly to private ownership and to dual-class ownership, as historic families try to insulate their papers in this downtime;
- It diversified poorly. Many of its TV stations were low-rated WB affiliates, with minor news franchises. In addition, TV is afflicted with similar woes as print newspapers — an aging viewership (60 for broadcast TV; 56 for newspapers). Yes, it invested in some good web properties, but not enough to make a big enough difference quickly enough.
- It adopted an own-the-city advertising market approach, that appears to have fallen flat on its face. In buying into the New York and L.A. newspaper markets, Tribune made much of being able to offer newspaper/TV/Internet joint ad buys, saying that such a move was the centerpiece of a strategy to increase ad share in the top 3 markets. "They [advertisers] were already buying all three, and the increase just wasn’t there," says one participant in the strategy. "And the advertisers expected further discounting. I doubt whether we picked up any share."
It now looks like Tribune will either be sold outright, in pieces or become a significantly smaller company. The outright sale idea — newly affirmed by Fitzsimons — offers one big problem, the tepid market for newspaper and broadcast TV properties. In the end, Knight Ridder itself received only one genuine bid for all its properties, which McClatchy immediately moved to divvy up. Lauren Rich Fine, who covers the industry for Merrill Lynch placed a potential sale of the newspaper assets at 10X EBITDA or less, which is less than the KR sale and a far cry from 13X Lee Enterprises paid for Pulitzer in 2005.
"You could build an empire around what Tribune is selling," Benchmark Co. analyst Edward Atorino told Reuters. That empire building or dividing is most likely to be done by private equity, say most observers. Few media companies have either the business health or financial wherewithal to make it work. Private equity though can buy Tribune is its distressed state — price estimates are in the $14 billion range, including debt assumption — with lesser concerns for employee welfare, relations with union and the continuing glare of Wall Street.
Tribune’s Internet holdings have been the crown jewel of the distressed kingdom. It owns 42.5% of CareerBuilder (the leading recruitment website), strong minority stakes in Classified Ventures (cars, apartments) and the Food Network, 42.5% of ShopLocal (a struggling retail shopping comparison site) and 31.9% of much-talked-about-but-little-revenue producing news search site Topix. The value of the CareerBuilder and Food Network stakes have been put at about $1.5 billion together.
Overall, Internet ad revenue make up about 6% of the Tribune Company’s ad revenues, with Fitzsimons saying he had hoped to bring that number into double digits in the next several years.
As the Tribune saga unfolds, the impact of a sale on Internet properties will be key to watch. The re-shaping of classified-associated verticals will generate shock waves in an industry in which players are jockeying for position and negotiating major distribution agreements with the GYM companies.
On a regional basis, the third-largest market, Chicago, will be forever changed, if in fact the Tribune relinquishes its home properties. The Tribune owns the town today, with properties including the Chicago Tribune, WGN TV and radio, the local cable network and even the lovably losing Chicago Cubs. In Los Angeles, the second biggest market, it owns the Times , the dominant paper and political voice. In fast-growth Florida, the Orlando Sentinel and the (Fort Lauderdale) Sun Sentinel are strong players and cash cows.
In Outsell’s Opinion: The Tribune news would have been big news last year. Now it’s just part of a quickening parade of news industry cutbacks, dire predictions and would-be musical chairs as the industry’s cracks multiply. We believe what we’re really seeing here is a reckoning. Especially as the economy and with it advertising spending slows, companies will be unable to maintain anything near the reported 23% newspaper margins enjoyed by the Tribune. Outsell’s own "Deadline with Destiny" report did the arithmetic: even stringent cost-cutting matched with margin cuts are unlikely to make up the estimated $20 billion revenue shortfall facing the industry over the next five years. Growth is the requirement of the day, and it is how these companies, large or small, will make a future. And that growth will come, fitfully, online.
This step in the process, the reckoning of the Tribune, may further represent a shift in the strategic leadership within the industry. The proud troika of Tribune, Knight Ridder and Gannett (TKG) burst out of the late-90’s gates, buying and building classifieds and other properties. Other newspaper companies, among them Scripps, Hearst, Belo, Media News, Advance, and McClatchy pursued various strategies, but largely individually. Now they’ve banded together, in deep negotiation with Yahoo! and Google on precedent-setting agreements around classified and news distribution. A Tribune dissolution or shrinking is bound to push that group, perhaps better allied with the Associated Press, toward industry leadership, a commodity greatly needed.
Further, we may see a further splintering of local ownership, as we saw in the Knight Ridder dismemberment. In L.A., at least three billionaires (David Geffen, Eli Broad, Ron Burkle) have declared interest in the once-prouder Times. In other Tribune cities, potential local owners are beginning to come forward. Such ownership, perhaps able to see the future through new eyes, while taking less profit in the short term, may help the industry re-invent itself.