By: Jennifer Saba
With the deadline looming for bids on the Tribune Co., Merrill Lynch analyst Lauren Rich Fine thinks the most likely outcome is no outcome — that no sale will take place.
In a report issued this morning, Fine and her team outlined several different scenarios that could occur after Jan. 17 — the day bids are reportedly due.
She believes that no one will come forward with an enticing offer, based on the fact that Tribune shares are trading at discount. “Investors appear to anticipate that no sale will transpire; we think there is a distinct possibility of that happening and note that even if there is a sale, a big premium is unlikely.”
If that is the case, she’s also betting that Tribune’s shares will recover if no sale occurs to the low $30s. Currently Tribune is trading at 7.6 times 2007 estimated EBITDA while its peers are trading more around 8 to 8.5 times.
McClatchy’s sale of the Star Tribune in Minneapolis has put a kink in newspaper valuations. Merrill Lynch estimates a 6.5 to 7 times (pre-tax benefit) multiple for that transaction. The Star Tribune is a large paper and most of Tribune properties are metros, thus the Star Tribune’s “multiple could be seen as a proxy for Tribune,” wrote Fine. “However, we believe this multiple is not entirely representative as the transaction was more a ‘fire sale.'” McClatchy bought the Star Tribune for $1.2 billion in 1998.
Merrill Lynch see limited upside for private equity based on the low price of the Star Tribune (bought by Avista Capital for $530 million) and the reportedly low bids for Tribune.
Even if a private equity player unloads Tribune’s stake in the Food Network and the Cubs — Merrill Lynch estimates $700 million after-tax — that move would “only very modestly add to returns.”
Tribune has indicated it wants to sell the entire company due to tax issue. But if offers are too low, Fine suspects management might consider selling off pieces.