Tribune to spin off newspapers, focus on broadcast TV business
Tribune Co. is getting out of the faltering newspaper business, but probably not the way it hoped.
The media giant announced Wednesday that it will spin off its publishing unit into a separate company, a maneuver that’s likely to delay a long-expected sale of the Los Angeles Times. The spinoff could take nine months to a year to complete.
The new entity, to be called Tribune Publishing Co., would comprise The Times, the Chicago Tribune and six other daily papers. All other assets, including the company’s real estate holdings and stakes in several Internet sites, would remain part of Tribune Co. The spinoff would be tax-free to Tribune shareholders.
Spinoffs are Wall Street’s version of addition by subtraction. The steadily declining advertising revenue of Tribune’s publishing unit cast a shadow over the entire company. Hiving off the papers eliminates that risk and raises the value of the company’s television, radio and Internet properties.
Investors liked the idea of the split, sending Tribune shares up $1.95, or more than 3%, to $63.65.
Tribune has repeatedly signaled its intent to remake itself as a TV broadcaster since emerging from bankruptcy protection at the end of last year. Last week, it agreed to pay $2.7 billion to acquire 19 local TV stations across the country. That would give Tribune 42 stations in all, making the company one of the nation’s largest station operators.
The spinoff would clear the way for Tribune management to focus on its broadcasting properties and to prepare for a potential initial public offering on a major stock exchange, perhaps this year or in early 2014, analysts said.
The spinoff would also allow Tribune to sidestep a big tax bill. The papers are worth about $800 million but would have triggered a $150-million tax liability if Tribune sold them, said Matt Kaplan, an analyst at Imperial Capital in Century City.
Peter Liguori, Tribune’s chief executive, portrayed the spinoff as beneficial to both the print and broadcast units.
“Each will be a stronger company when separated from the other,” Liguori said in a memo to employees. “A company that is growing and succeeding on its own merits has a surer, clearer path forward, built on the ability to invest in and shape its own future.”
Tribune wanted to jettison the papers to move quickly to capitalize on the suddenly brighter fortunes of the TV business, analysts said.
“Every minute they spend on the newspapers is less time they’re going to spend on television,” said Edward Atorino, an analyst at Benchmark Co. in New York. “It’s costing them money.”
The spinoff of the publishing unit appears to be Plan B for Tribune, which had been aiming to unload its newspapers in a private sale.
“This is obviously an admission they couldn’t find a buyer for all the papers at an agreeable price,” said Craig Huber, media analyst at Huber Research Partners. “This is the fallback position.”
Several prominent suitors, including industrialists Charles and David Koch, media mogul Rupert Murdoch and local philanthropist Eli Broad, have expressed interest in the papers, according to sources.
Tribune hired investment bankers in February to analyze a potential sale of the newspapers. But the process moved slowly.
Tribune never gave suitors detailed access to the newspapers’ financial books, in part because that could have compromised a spinoff. Federal law bars tax-free spinoffs if companies have taken concrete steps to sell the unit being jettisoned, analysts said.
The Times and other papers still could be sold at any time and the idea of the spinoff abandoned.
But finding buyers willing to pay a significant sum for papers in a troubled industry is difficult, said Marshall Sonenshine, managing partner at Sonenshine Partners in New York. Sonenshine advised the parent company of the Philadelphia Inquirer when it was sold to an investor group in 2010, a grueling process that underscored the difficulty of selling a troubled asset.
“It is not easy to sell a newspaper,” Sonenshine said. “People saying they’re interested doesn’t mean they’re actually buying it. If [Tribune was] actually close to selling the company they wouldn’t do this [spinoff].”
Other media companies, notably Murdoch’s News Corp., have spun off their publishing units. Nearly two weeks ago, News Corp. divided into separate companies: 21st Century Fox and the much smaller publishing group News Corp. 21st Century Fox contains the hugely profitable television networks, including Fox News Channel and Fox Broadcasting, 20th Century Fox movie studio and interests in satellite TV services around the globe.
Tribune’s focus on television comes at a time when the broadcast industry is back in favor on Wall Street.
The TV station business has rebounded strongly from a brutal advertising recession five years ago. That has been driven by a rebounding auto industry, an improved economy and huge spending on political campaigns.
Last year, local TV stations took in nearly $3 billion in political ad money, according to the Television Bureau of Advertising.
Local broadcasters have also found a new revenue stream by charging pay-TV distributors to carry their signals.
“Clearly all of the elements are in place to give Tribune maximum flexibility when they take the company public,” said Steve Ridge, president of the media strategy group for consulting firm Frank N. Magid Assoc.
“There is no rush, but this [going public] is something that they would not have had the flexibility to do before now.”
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