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Will Buyout Save Tribune?

Posted on Tuesday, Mar 27th 2007

Tribune Company is a media and entertainment company engaged in publishing, interactive media and broadcasting. The Company is the only media organization with newspapers, television stations and websites in the nation’s top three markets and reaches out to approximately 80 percent of U.S. households. Tribune publishes 11 popular daily newspapers including Los Angeles Times, Chicago Tribune, Newsday, Baltimore Sun, South Florida Sun-Sentinel, Orlando Sentinel and Hartford Courant.

The Company also operates 20 television stations, Superstation WGN on national cable, Chicago’s WGN-AM, the Chicago Cubs baseball team and popular news and information websites, which supplement Tribune’s print and broadcasting properties and extend the company’s nationwide audience.

Like its peers (Gannett, McClatchy, NYT) Tribune is also suffering from declining advertising revenues and newspaper circulation. The Company’s ad revenues decreased 5.1% to $233 million in February 2007 compared with $245 million in February 2006. The only bright spot was the 17% rise in Interactive revenues to $20 million.

Tribune has been working on restructuring its businesses and keeping in line with its strategy it has sold off WATL-TV, Atlanta to Gannett Co., Inc. for $180 million, WCWN-TV, Albany to Freedom Communications, Inc. for $17 million and WLVI-TV, Boston to Sunbeam Television Corp. for $113.7 million. The Company has outsourced customer service call centers for its top eight newspapers. IT helpdesk operations were outsourced in January 2007.

The Company has been focusing on growing its Interactive business as it has been witnessing rapid growth (up 29% in 2006) and has the potential to add significantly to Tribune’s future cash flows. Tribune runs 50 sites, which attracted approximately 14 million average monthly unique visitors in 4Q, 2006.

Tribune launched a common advertising system with a sophisticated e-commerce platform for selling classifieds through its newspaper websites. Tribune along with Gannett and other partners is working on a national network for Internet ad sales, which will focus on the needs of the customers and allow any national advertiser to reach local newspaper website users thereby tapping into a larger pool of national online dollars.

The Company’s digital business revenues, including the share of revenues from interactive joint ventures and investments, made up 10% of its total revenues. Clearly internet is where the action is and the company has formed a number of joint ventures to invest in (CareerBuilder, Classified Ventures, ShopLocal and Topix.net) and acquired unique sites like ForSaleByOwner.com to exploit this opportunity.

The Company faced with challenges has been exploring strategic alternatives and was put on the block in September 2006 after it was pressurized by it largest shareholder, the Chandler Trusts. The Tribune Company had received offers of takeover from Ron Burkle and Eli Broad (billionaire investors), as well as the private equity firm Carlyle Group. David Geffen had also put in a bid for the Company’s Los Angeles Times newspaper.

According to Wall Street Journal the “Tribune Company is leaning toward accepting a buyout proposal from real-estate magnate Sam Zell”. Zell has proposed a $33 per share or $8 billion to buyout Tribune. Speculations are ripe about Ron Burkle and Eli Broad making a counter bid.

But the question remains. Will this buyout save Tribune? Can Tribune turnaround? Are the company’s online initiatives enough? Do they need to push more aggressively online?

Yes, Tribune has made a number of strategic moves in the online media space and TheEnvelope is a step in the right direction, but the company needs to roll-up many more relevant online verticals to save the day.

If you have read my previous posts on Gannett, NYT, Dow Jones and McClatchy, you would have noticed that all these media giants have been facing declining newspaper circulation and print advertising revenues. However, companies like NYT, Dow Jones and Gannett have been swift to shift their focus to online media, which has been witnessing a rapid growth in eyeballs and advertising revenues.

Similarly, Tribune’s online efforts also need to aggressively push into Web 3.0, vertical roll-ups, and a systematic divestature of dwindling old media properties that are sucking out profits. No matter what becomes of thei ownership structure, the answer for the turnaround questions will predictably remain in the online realm, and Tribune’s online efforts seem significantly less aggressive than those of its peers.

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[…] Does Sam Zell understand what he has in his hands, and what needs to be done? […]

Sramana Mitra on Strategy » Blog Archive » Tribune To Zell Monday, April 2, 2007 at 12:24 PM PT

As you’ve indicated, Tribune desperately needs a change in strategy to deal with the changes happening in its industry. However, this deal insures that no new strategy will be adopted. By loading up the company with $7B of NEW debt 5 years of draconian cost cutting will be extended in an effort to defend the failed old strategy. Investors should be delighted to get out, and bondholders should run from this transaction, as it threatens the very viability of the company. Read more on my blog http://www.ThePhoenixPrinciple.com

adam hartung Monday, April 2, 2007 at 12:28 PM PT

Adam,

How about focusing on one business : online + local news + classifieds?

They can divest all the TV stations, and raise cash that way to pay off the debts, then hunker down and re-engineer the rest of the company as I proposed above.

Sramana

Sramana Mitra Monday, April 2, 2007 at 8:01 PM PT