24/7 Wall St. » Tribune

Tribune Monthlies Show Neverending Carnage (TRB)

247wallst — Fri, 24 Aug 2007 07:56:13 +0000

Tribune’s (NYSE:TRB) consolidated revenues for the July (7th) period were $467 million, Down 5.9% from last year’s $496 million. As youread through the numbers you’ll see that there is really only one bright spot, and that bright spot will have to grow mush faster to offset the rest of the carnage: Interactive. Publishing revenues in July were down 8.6% to $319 million. Advertising revenues Fell 10.3% to $247 million. Here is a breakdown:

Retail advertising revenues decreased 6.0% with the largest declines in the department stores and home furnishings categories, partially offset by improvements in the health care and restaurants.

National advertising revenues fell 3.7%, with declines in auto, financial and resorts.

Classified advertising revenues decreased 18.2% total. Read these and you know they have to hate Craig’s List: Real estate -24%; Help wanted -19%; automotive -14%. The only bright spot was, of course, Interactive Revenues at $22 million and up 11%.

Circulation revenues were Down 5.4% due to single-copy declines and continued selective discounting in home delivery.

Broadcasting and entertainment group revenues in July were flat at $147 million as a decrease in television revenues was offset by increased revenues at the Chicago Cubs and Tribune Entertainment. Television revenues fell 3.7%, with lower automotive, movie and political advertising, partially offset by strength in the telecom/wireless and health care categories.

What is puzzling is just why on earth Sam Zell even wants to buy (or actually invest in controlling interest) Tribune. We noted earlier this week that even with shareholders approving the deal that Sam Zell will likely lower his offering price. It won’t necessarily be by choice either, because if you were a banker would you loan that vast sum of cash to finance a deal when the underlying business is eroding this fast?

The carnage continues across the board and as small as Interactive revenues are they cannot offset the onslaught against print media. This company better go out and start buying up more ‘interactive’ plays where it can. The long hard truth is that newspaper readers are falling off faster than smokers in nursing homes. Sad, but true.

Jon C. Ogg
August 24, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Shareholders Approved The Deal, But What Will Tribune Really Fetch? (TRB, GCI, NYT)

247wallst — Tue, 21 Aug 2007 12:25:48 +0000

Shares of Tribune Corp. (NYSE:TRB) are trading up higher by about 3% today after shareholders approved the transaction with Same Zell. That was not really a question. If you were in a troubled industry that is going to face a steady secular onslaught ahead and may not be able to keep your stock above $30.00, of course the $34.00 transaction would be approved. Sam Zell first gave the formal terms on April 2, 2007 at the height of the private equity boom.

Here is the first problem: Zell was getting the most influential voice in the company with what was going to be $315 million investment. Tribune’s total equity deal would value the stock at nearly $4 Billion. He got the company to approve the Employee Stock Option Plan to hold the outstanding stock and Zell holding a subordinated note and a warrant giving him the right to buy 40% of the stock. He also gets the chairman seat. Employees will finance a huge portion, but they all have to know who they will ultimately be answering to.

The real problem is that a cash tender for 126 million shares at $34.00 per share was to be funded with incremental borrowings and a $250 million investment from Sam Zell. In a credit-tight environment it is hard to imagine that there would not be financing concerns. It will be able to sell off assets to pay down the debt, and it seems no one believes that Zell won’t try to renegotiate terms. Wouldn’t you?

Our prediction: A new offer would seem to still be fair around $31.00 on the low-end and the need to pay above $32.50 just doesn’t seem merited if the credit markets are going to actually make you prove you have real worth. We noted some risks to the merger last week and before.

Incidentally, Options out to January 2008 seem to give an indicated price range of $31.50 to $32.40. That is a highly subjective number, but that’s what the tea leaves are signaling today after the 3% gain in the stock. The future of newspapers and broadcast stations still has a value, but it is a decreasing value and far lower than just a few years ago.

Gannett (NYSE:GCI) shares are down over 15% since early April. New York Times (NYSE:NYT) shares are off less than 10% from early April, but those shares are down more than 15% since the June highs. Neither is a fair comparison since they don’t have as broad of assets, but a company reliant upon newspaper sales is going to be compared to other newspaper companies.

Jon C. Ogg
August 21, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers

Tribune’s Murky Acquisition by Sam Zell

247wallst — Mon, 02 Apr 2007 08:15:20 +0000

It’s official: Tribune (TRB-NYSE) is being acquired by Sam Zell for $34.00 per share in cash, sort of. Tribune will be privately held, with an Employee Stock Ownership Plan (ESOP) holding all of Tribune’s then-outstanding common stock and Zell holding a subordinated note and a warrant entitling him to acquire 40 percent of Tribune’s common stock. Zell will join the Tribune board upon completion of his initial investment and will become chairman when the merger closes.

This is a two-stage deal where Sam Zell will acquire 126 million shares in a cash tender in Q2, but then a second stage tender in Q4. The board of directors of Tribune, on the recommendation of a special committee comprised entirely of independent directors, has approved the agreements and will recommend Tribune shareholder approval. Representatives of the Chandler Trusts on the board abstained from voting as directors. However, the Chandler Trusts have agreed to vote in favor of the transaction.

The Employee Stock Option Plan will immediately buy $250 million innewly issued stock at $28.00. Sam Zell will invest $250 million andjoin the boards. Tribune itself will launch a tender for its ownshares at $34.00 ($4.3 Billion). Shareholders may receive an 8%annualized "ticking fee" on their shares if it has not closed byJanuary 1, 2008. The company can shop the deal up to shareholderapproval date for a break-up fee of $25 million to Sam Zell. Tribuneis suspending its dividend.

Tribune has financing commitments from Citigroup, Merrill Lynch andJPMorgan Chase to fund the transactions. Tribune will initially raise$7.0 billion of new debt of which $4.2 billion will be used to completethe tender offer and the remaining $2.8 billion will be used torefinance existing bank credit facilities. In the second stage, Tribunewill raise an additional $4.2 billion of debt which will be used to buyall the remaining outstanding shares of the company. Tribune’s existingpublicly-traded bonds are expected to remain outstanding.

The Chicago Cubs will be sold after the 2007 season along with a 25%stake in Comcast SportsNet Chicago, and those proceeds will pay downdebt. If this is not a complicated or unusual deal, then who knowswhat is. This is really more of an investment and assumption ofcontrol with a leveraged gamble from the new assumed debt. For abillionaire, he just took the company on the cheap compared to aclassic buyout of what is otherwised thought of as a media asset in adiminishing industry.

Based on the structure being complicated and based on this being afuture "ex-Cubs" basis, this one might not be over. Being able totakeover a property like this with this sort of structure may actuallykeep some of the industry carnage from destroying some of the other"old media" stocks.

Now for the bigger question going on in Chicago: Who will get the Cubbies?

Jon C. Ogg
April 2, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.