Troubles Tower Over Tribune
Important Details: The Tribune’s annual meeting, held on May 2, at first seemed unexceptional. CEO Dennis FitzSimons acknowledged that the company’s revenues and share price were troublesome, but said he was buoyed by the growth of the company’s Internet businesses and experimentation with free dailies.
He also noted that Tribune – the third largest newspaper company in the U.S. – might sell a couple of selected properties in due course, without a rush, as it assessed markets. Soon, it became apparent that his plan to bolster value involved buying back as much as 25 percent of the company’s stock. FitzSimons would pay for the buyback by cutting an additional $200 million in costs and sell non-core assets for about $500 million.
FitzSimons said that the large blocks of stock owned by friendlies – McCormick Tribune Foundation in Chicago and the Chandler Trusts in L.A. – lessened the chance of a forced sale, such as Knight Ridder has experienced.
It’s now clear that FitzSimons underestimated the investor unrest and may face a fate similar to Knight Ridder. Such a fate would signal that the KR sale – finalized Monday – was not an isolated event. In fact, that KR sale looks it will go down as the beginning of a major restructuring of the newspaper industry. Outsell believes that the restructuring will be thorough, affecting everything from the industry’s own collaborative initiatives to its relationships with Google, Yahoo! and MSN (GYM) to its ability to make it through the next three to five years of what will be a transformative time for print media.
Since the annual meeting, Tribune management has been hit with a raging storm.
This week, after a month-long tender period, it saw its offer to buy back stock at an above-market price undersubscribed. Consequently, it will buy shares on the open market to make sure it meets its plans to buy back 25 percent. That is just the latest signal that the markets think Tribune is ripe for break-up or wholesale sale – at a higher price.
The company’s second biggest shareholder, the Chandler Trusts, had raised its voice loudest about the buybacks. The Chandler Trusts now own 14 percent of the company, gained when they sold their Times Mirror properties to the Tribune in 2000. The Trusts, cited by FitzSimons in May as a bulwark against forced sale, issued a vote of no-confidence in management. Representatives of the Trusts oppose the buyback and have called for "decisive action" – meaning sale of part or all of the company. It is widely believed that Thomas Unterman, the key figure in selling Times Mirror to Tribune, is a point man in the new intrigue. This week, it became clear the Trusts representatives are actively talking to potential buyers of the L.A. Times – once the Chandlers’ flagship – and to private equity on Tribune break-up potentials overall.
Suddenly, a lot is now on the table, including:
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Sell some or all of its underperforming 26 TV stations, many of them underperforming WB stations now moving to the CW merged network (WB/UPN). Just this month, Tribune sold one large station, WATL in Atlanta, for $200 million.
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Sell the Cubs, part of the company’s near-stranglehold on the Chicagoland market (it owns the Tribune, WGN radio and TV, Chicago Land Television cable network, and the Cubs baseball franchise).
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Sell some of its 11 newspapers (among them, the venerable Chicago Tribune, Orlando Sentinel, Fort Lauderdale Sun-Sentinel, Baltimore Sun, and Newsday.) Newspapers make up about 73 percent of the company’s revenues. Of course, the KR sale showed that it’s not exactly a seller’s market. In addition, recent pressure on Pearson to sell the Financial Times just adds to the sense that the market today features more sellers than buyers.
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And then, finally: sell the company as a whole or break up its parts for sale to maximize shareholder value.
The building pressure has been reminiscent of the pressure that built after Knight Ridder’s leading institutional shareholder urged a sale last November.
It now seems that within a year, two of the three biggest newspaper companies in the country could disappear. Even without a disappearing act, some divestment by Tribune will contribute to the major restructuring of the American newspaper industry. Suddenly, the industry’s leadership reins are up for grabs. The six major companies outside the Tribune/Gannett/KnightRidder Web partnerships – McClatchy, MediaNews (those two newly enlarged by buying KR properties), Scripps, Hearst, Belo, and Advance – assume a larger and maybe more defining role. Those companies have recently visited with Yahoo! on a host of collaborative possibilities. Out of those discussions, and no doubt many others, new strategies will emerge.
In play are these key properties:
CareerBuilder (recruitment advertising) and Classified Ventures (auto, apartments), the industry’s largest-scale classified networks. Both have been dominated by Gannett, Tribune, and Knight Ridder, so change here is inevitable. With Knight Ridder’s dissolution, its stake is in play, with buyback rights held by Gannett and Tribune and much jockeying going on. It looks like McClatchy will be a partner in CareerBuilder and a larger partner in CV, while at least a couple of the other six may take new ownership stakes as well. These networks are key to more than a third of overall newspaper revenue going forward.
Knight RidderTribune NewsWire, Knight RidderTribune BusinessNews Wire, and Newscom. Second to The Associated Press in scope, especially in business, features, and photos, this service is already undergoing a profound change as KR exits the scene and McClatchy takes its 50 percent stake. With McClatchy already involved in both the Scripps News Service and the New York Times wire, change and/or consolidation here has been inevitable. As Tribune (a partner with the Washington Post in the L.A. Times/Washington Post wire) sorts out its future, we may see a reshaping of the newswires. That means inevitable repositioning for the AP, and a keen eye toward what a print/Web/syndication role the wires of tomorrow must play.
Topix: Gannett, Knight Ridder, and Tribune bought a majority of this vertical/local search engine two years ago. They’ve experimented with harnessing the power of its technology to advance news traffic. It’s time to determine if and how it can be harnessed going forward.
In Outsell’s Opinion: The pressure on Tribune is not surprising. Once a small wave of pressure caused Knight Ridder to immediately cave in to sellers, it was inevitable that Tribune and other single-class public companies would soon come under siege as well.
Why? Newspaper publishers face many pressures, and they won’t be lessened soon. What looked like a transition for the industry now looks like a transformational time. Outsell believes that it is going to be difficult for single-class public companies to make it through these times of transformation, as margins seem inevitably to erode, at least in the short term. The public markets are not set up to wait out years-long transition. Inevitably, those newspaper-owning companies that are private or set up with two classes of stock (usually one family-based, super-voting class dominating) may well be the future of the industry.
In addition, Tribune’s revenue lines, once thought diversified, are tired. It has three-quarters of its revenue tied up in print, and most of its diversification has been in broadcast TV, another industry experiencing the pain of Internet competition. Outsell believes media companies like Scripps and Hearst, with more diversified revenue lines, including faster-growing Internet and cable, may prove most able to ride out the newspaper storm.