NEW YORK: The Tribune Co. is the latest newspaper giant to become the target of selloff speculation, just a week after investors began pressuring Knight Ridder to break up or sell off certain assets.
A report released on Tuesday by Merrill Lynch analyst Lauren Rich Fine details several scenarios in which Tribune could get more value for shareholders, including the sale of its newspaper properties.
Analysts at the research firm sense that "the company is under pressure to start investing in higher growth, higher return areas and/or monetize some of its current assets."
Merrill's report expressed surprise that "Tribune management has not been more proactive in attempting to surface value and in fact has retrenched from earlier share repurchase efforts in favor of retaining its credit rating."
A spokesman for Tribune declined to comment on the report.
The Tribune's weak share price performance over the past year -- down 20% compared to a flat S&P500 -- and the fact that its properties are underperforming its peers, has fueled speculation regarding the sale of certain Tribune assets, the report said.
Analysts have observed that over the past two years, Tribune has retrenched and even pulled back from share repurchase plans: "We find it somewhat surprising that it has not engaged in more radical actions to surface shareholder value."
In addition to a sale of its newspaper assets, Merrill Lynch notes other potential options, including the sale of Tribune's TV division, the sale of its smaller-market TV stations and newspapers, changes to Tribune's capital structure, and the sale of the entire company.
Merrill Lynch estimates a theoretical private market value for the entire company of over $50 per share. Analysts point out that a sale of the entire company is unlikely given its size, which they estimate at $14 billion. "The actual value realized would depend on the structures of the deal and how much in taxes could be shielded," analysts noted.
Hypothetically, Merrill Lynch said the sale of Tribune's newspapers could be the best route, since analysts estimate that transactions could generate $8 to $10 per share of incremental value (versus $2 per share by selling its TV stations and up to $5 per share selling its other equity stakes).
But the research firm thinks that finding a buyer would be more problematic. Given the size of the transaction -- the newspaper division represents over 65% of total EBITA -- Gannett would be the most likely player. And yet traditionally, Gannett tends to focus on smaller markets. Tribune's largest newspaper properties are in Los Angeles, New York, and Chicago.
The Los Angeles Times itself could attract buyers from outside the industry, the report noted. But the Chandler family would have a major say in the sale. MediaNews Group could buy the Times, given its ownership in papers in southern California, but would need outside help.
Like the Times, the Chicago Tribune could be attractive to people outside the industry, but the McCormick family would most likely have to vet the deal.
E.W. Scripps could be a potential taker in Tribune's Florida newspaper properties given the higher growth rates in these markets, the note reported.
Newsday is the "wildcard" because of its circulation problems, and The Sun in Baltimore is facing competition from a free daily.
Private equity players are also considered potential buyers of Tribune's newspapers, but Merrill finds that option to be the least likely: "We think it is going to be difficult to justify high exit multiples given the secular issues facing the industry."
Jennifer Saba (jsaba@editorandpublisher.com) is associate editor at E&P.
