Sale, Not Synergy, In Tribune Co.'s Future, Experts Say

By: Mark Fitzgerald The stars are converging against convergence, the latest evidence being Tribune Co.'s decision to explore the possible sale of its broadcast properties.

Tribune's $8 billion deal to buy Times Mirror six years ago was rooted in the firmly held belief of many in the newspaper industry that the future lay in "convergence" or "synergy" -- adding broadcast and Internet to print to multiply the sales and circulation possibilities.

Until Thursday, Tribune battled mightily to keep that strategy alive. Like virtually all other publicly held newspaper chains, it cut staffing. It attempted this summer to boost its stock price by taking on more debt to finance repurchase of 25% of its stock. The price did rise, about 12% before the rise in recent days based on speculation that Tribune might go private or raise cash in a big sell-off of assets.

Ultimately, the stock repurchase didn't didn't make much dent in a stock that had fallen 38% since 2003.

Now, further cost-cutting may not work, some analysts warned Friday.

"We believe that further cost reductions are unlikely to reverse the trend of negative earnings estimate revisions absent an uptick in ad revenue growth," Goldman Sachs analyst Peter Appert said in a note to clients. "With classified revenue performance slowing and both the retail and national ad categories soft, we see little near-term prospect of improved earnings trends."

That leaves selling off properties such as its big television and radio unit, its investments in cable and Internet, even the beloved Chicago Cubs, whose struggle this year has been, if anything, worse than its parent corporation.

The good news for Tribune is that they will find an eager market -- especially for broadcast, experts say.

Large broadcast stations in big cities rarely go on sale these days, long-time broadcast broker Cliff Gardiner said in a telephone interview Friday from his Lakewood, Col., business.

"Right now, as far as properties in the market, either in TV or radio, there really aren't many," he said. "There are certainly buyers for those tribune stations. They are all very desirable properties. ... If they were to come on the market, they would have buyers very quickly."

Gardiner, who concentrates mostly on brokering radio station sales, added that broadcast properties -- like newspapers -- are trading near historical highs these days. Multiples range from 10 to 14 or 15 times cash flow, he said.

Analysts cheered the unwinding of the partnerships with the Chandler family interests Tribune inherited in the Times Mirror sale, because they make asset sales all the more likely by removing some tax impediments.

"We view the restructuring as a positive for the stock, as Tribune now can choose to pursue more significant transactions which had not previously been viable due to major tax issues with the partnerships," said UBS Investment Research analyst Brian Shipman in a note.

Shipman called an outright sale of Tribune ?unlikely,? but added pointedly that his team of analysts was not ruling it out.

Morningstar's James Walden said, according to The Associated Press, that the announcement looks to be "the beginning of the end of a very tumultuous period" for the company, with likely scenarios including a sale of broadcasting assets or sale of the entire company to management or private-equity investors.

"While no outcome is certain, we anticipate that some meaningful transaction will occur," he wrote in a note to investors. "We've long held that Tribune is significantly undervalued, and any of these scenarios could unlock tremendous value for shareholders."