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March 29, 2024

Tribune Sale Concludes in $8 Billion Deal

Important Details: Another outsider has bought into the US newspaper industry. In this case, investor Sam Zell becomes both the newest and most significant new face in an industry undergoing rapid ownership change. Zell and The Tribune Company agreed to his purchase of the company in the wee hours of Sunday night. The purchase price is about $8.2 billion, plus assumption of debt of about another $5.5 billion. Zell – who in February cashed out about $1 billion in selling the Equity Office Properties Trust to Blackstone Group for $23 billion — is a motorcycle-riding, paint-ball playing man of the world who can swear like a veteran reporter.

While some of the details of the transaction are as yet unreported, involving a phased-in set up of an ESOP (Employee Stock Ownership Plan), here are the key points:

  • The share price is $34, about a dollar more than nine months ago when the Chandler Trusts (owner of 20% of the company) first pushed for a sale.
  • Zell puts in $315 million in cash into the deal. He will become chairman and gain about a 40% ownership share, giving him effective control.
  • An ESOP will be set up. It will channel future employer (and perhaps employee) contributions to retirement funds into company stock. Employees then, over time, will own a larger percentage of the company. The ESOP offers the current sales transaction itself tax advantages.
  • Zell has already said he will sell the Chicago Cubs, valued at about $500 million, at the end of the baseball season, as well as Tribune’s 25% stake in a local sports network.
  • Tribune’s properties include, six large daily newspapers — Chicago Tribune, L.A. Times, Hartford Courant, Baltimore Sun, Fort Lauderdale Sun-Sentinel, and Orlando Sentinel — and 23 TV stations. It also has significant stakes in the CareerBuilder online recruitment site, the Classified Ventures auto and real estate sites, the Topix news aggregation site, and the ShopLocal shopping comparison site. Other investments include those in cable and education.

In Outsell’s Opinion: Outsell believes it’s highly significant that no newspaper or larger media companies were bidders in this process. The industry view — unspoken, but clear — is that these companies’ values haven’t yet hit bottom. The deepening advertising and circulation declines only further concerns about how much value will be lost how quickly. In addition, though online revenue is growing, it looks like it has begun to level off. That would mean that there’s less likelihood that digital revenues will be able to make up for those substantial print revenue declines in the short term. The smart industry view says the Tribune got a fairly decent price at this point in the market, and should be glad to take it.

Contrarians, and Sam Zell would be the contrarian of the moment, say that fresh eyes are needed to see through current woes. They see assets that have been undervalued and or under-managed. Now Zell, with Tribune’s properties, and new independent owners like Philadelphia Media Holdings (with the Inquirer and the Daily News) and Avista Capital Holdings (with the Minneapolis Star-Tribune) can take a new bite of the apple, potentially bringing in thinking from outside of the industry. Curiously, this view has to take into consideration that these properties being bought are not simply distressed properties — they are properties in a distressed industry. So what’s required is more than rethinking a particular company or market. What’s required is re-imagining of new business models — involving first and foremost advertising products and then video, audio, user-generated content and much more.

The debt taken on in the transaction is significant — about $10 billion, in total. That’s a heavy rock to carry on a company’s shoulders. Paying down debt is a lot easier when you have a lot of room for cutbacks (Tribune has already gone through a couple of rounds of those) and good revenue growth prospects. In this case, the debt could further hamper the new companies’ abilities on a couple of fronts. The old print business still demands capital for new presses and new trucks. The newer internet businesses require cash for acquisition, and for buying both needed technologies and audiences. Consequently, the debt constraint could complicate the new, private Tribune’s ability to maneuver in the marketplace.

Finally, Tribune’s sale could push forward the re-ordering of the industry. When McClatchy bought Knight Ridder a year ago, it became a junior partner (Knight Ridder had been a full a partner) to Tribune and Gannett, in the online classified businesses, and in Topix and ShopLocal. Now, we’ll see how Gannett and Tribune work out their relative stakes and board seats going forward. They’ll have to do that with an eye on Yahoo!, as it solidifies and expands its new consortium with 10 large newspaper companies. In fact, the re-ordering may include some new thinking about the competition and partnership in the recruitment space (and then others) as CareerBuilder, Yahoo! Hot Jobs and Monster Worldwide consider what the sale has wrought.