Chandlers Demand Breakup of Tribune

The former owners of the Los Angeles Times escalated their attack on the newspaper’s parent company Wednesday, with a breakup or sale of Tribune Co. a possible outcome.

In a regulatory filing, representatives of the Chandler family, which holds more than 12% of Tribune, called for radical changes at the Chicago-based company after what they characterized as “disastrous” decisions and a nearly 40% decline in the stock price in the last two years.

In a blistering letter sent to Tribune directors that was included in the filing, the Chandlers demanded that the company spin off television assets, including its 26 stations, and consider selling some or all of its 11 newspapers.

The No. 3 newspaper chain by circulation, Tribune also owns the Chicago Tribune, Newsday and the Baltimore Sun as well as KTLA-TV Channel 5 and the Chicago Cubs baseball team.

In a direct challenge to the leadership of Tribune Chief Executive Dennis J. FitzSimons, the Chandlers threatened in the letter to push for new management using their power as the company’s second-largest shareholder. The Chandlers sold The Times’ former parent, Times Mirror Co., for $8 billion in 2000, becoming Tribune’s No. 2 shareholder. Its biggest shareholder is the foundation set up decades ago by the late Tribune owner, Col. Robert R. McCormick, which owns a 13.6% stake.

One of the nation’s legendary newspaper dynasties, the Chandlers also threatened to ally with outside investors if the company did not address their concerns. Since late last year, the family has fielded inquiries from interested private investment firms and wealthy individuals, but hasn’t had any serious discussions, people with knowledge of the developments said.

“The Chandlers are stirring the pot up,” said industry analyst Edward Atorino of Benchmark Co., who added that adopting the family’s proposals would lead to higher stock values.

The letter gives the first public account of the Chandlers’ motivation for voting against a Tribune plan, announced May 30, to take on more than $2 billion in new debt to buy back 25% of the company’s stock. Championing a more dramatic solution, the Chandlers said Wednesday that they would not sell any shares to Tribune. The buyback is designed to give cash to shareholders and lift the stock price.

The shares have jumped since the disclosure last week that the Chandlers, who owned and ran The Times for more than a century, opposed the buyback. After the 11-page letter became public Wednesday, the shares rose 2.9% to $31.94. That is just below the $32.50 maximum price Tribune has offered to pay under the buyback, which expires June 26.

Tribune rejected the Chandlers’ demands, saying that it had already studied the proposals put forth by the family.

“Tribune’s board of directors evaluated a broad range of strategic alternatives at numerous meetings over a period of months,” lead independent director William A. Osborn said in a written statement.

FitzSimons defended his plan for improving operations. It includes “continued expansion of our Internet portfolio, the sale of non-core assets, and additional cost-saving initiatives,” he said in a statement. In an e-mail to employees Wednesday, he said many of the Chandlers’ assertions were inaccurate.

Tribune bought Times Mirror with visions of becoming a local powerhouse in major cities such as Los Angeles, New York and Chicago by owning both a newspaper and a TV station in each metropolitan area. In Los Angeles, for instance, the combination of The Times and KTLA was supposed to give the company new advertising clout and an abundance of content that could be migrated to the Web.

Although the Chandlers embraced the strategy when they sold their controlling stake in Times Mirror, their position has changed of late.

“This strategy has failed,” William Stinehart Jr., one of three family representatives on Tribune’s 11-member board, wrote. “Given the risk of a continued deterioration in the company’s primary businesses, if a separation of the newspaper and broadcast businesses or other strategic steps relative to the newspaper business cannot be accomplished by the end of the year, then the possibility of an acquisition of Tribune as a whole should take priority.”

The Chandlers can’t sell their shares without paying high taxes. Many of their shares are held in two investment partnerships, valued at $3.55 billion, that are owned with Tribune. The Chandlers want to end the partnerships without selling their shares, but the two sides are hundreds of millions of dollars apart on plans for doing that.

Because a spinoff would be difficult without changes to the partnerships, any investor groundswell for a spinoff would give the Chandlers an edge in those negotiations, people familiar with Tribune’s strategy said.

“They are trying to shift the balance of power their way,” one person said. “Whether they truly believe in a spinoff, I don’t know.”

In part, the boardroom conflict reflects a general dissatisfaction among investors with newspaper company stocks, which have fallen along with circulation and advertising volume as consumers have turned to the Internet. Another major chain, Knight Ridder Inc., is being bought and disassembled after investor pressure.

“It’s increasingly difficult to be a public media company today because we’re in a period of transition between print and online,” said Dean Singleton, chief executive of privately held MediaNews Group Inc., which is buying four Knight Ridder papers to become the fifth-largest U.S. publisher. “The performance sometimes is choppy and doesn’t translate to quarter-to-quarter growth.”

McClatchy Co., which is buying Knight Ridder and keeping 20 of its papers to become the No. 2 chain, has public stock but remains under family control. The publishers of the New York Times, Wall Street Journal and Washington Post also are family controlled, as was Times Mirror until the acquisition by Tribune.

The Chandlers called on Tribune’s board to name a committee of independent directors to plot a strategy, implying that management couldn’t be objective.

The three Chandler directors and FitzSimons are the only board members who don’t qualify as independent. By endorsing the stock buyback, the remainder had sided with management.

Investors acknowledged that Tribune has performed poorly, but noted that many of the problems were inherited from Times Mirror. Those include a circulation scandal at Newsday, a $1-billion tax bill for questionable accounting and declining readership at The Times.

“The merger has been a very big failure,” analyst Atorino said.

In its letter to directors, the Chandlers cited analysts and investors who calculated the company’s value at $42 to $46 a share.

Major Tribune investor Ariel Capital Management was among those cited. Ariel Vice Chairman Charlie Bobrinskoy reiterated Wednesday that a sale could bring as much as $46 a share, but said he believed the board would spin off TV holdings or take other steps to increase value.

A TV spinoff could set the stage for management to take the newspapers private.

“I think it’s been shown that newspapers and broadcast to a large extent are going to operate independently of one another,” newspaper broker Larry Grimes said. “All they’re really going to share is news coverage.”

Tribune has not ruled out a broadcasting spinoff, but it has deferred action to see how well the new network for its stations, called the CW, will fare.

Seven people control the Chandler money for more than 100 heirs. Those trustees include Stinehart and two other Tribune directors, Jeff Chandler and Roger Goodan. The group long ago split with publisher Otis Chandler, who built The Times into a nationally respected enterprise and died in February.

His son Harry said Wednesday that he hadn’t been kept abreast of the recent discussions, but that the paper could benefit from a return to local owners. Several wealthy individuals, including L.A. billionaires Ron Burkle and Eli Broad, recently said they would be interested in The Times.

“It was a big loss for the paper to have ownership transferred to another city, where the publisher and other honchos don’t have a vested interest” in Los Angeles, Chandler said. “The city has suffered because of it.”