Tribune Publishing Co. (NYSE: TPUB) management got unlucky. If its bid for Freedom Communications, owner of the Orange County Register, had been successful, the deal would have given it a set of papers that would have made it the print media king of southern California. The U.S. Department of Justice announced it would block the deal. Tribune Publishing’s only huge chance to build a tremendous regional business anywhere in the United States has ended.
That leaves the best way for Tribune Publishing to improve shareholder value as a sale of the Los Angeles Times and San Diego Union-Tribune. The yield would be worth more than Tribune Publishing’s market cap. The idea has been floated more than once before.
The Los Angeles metropolitan statistical area has 13.2 million residents, second only to New York’s 20.1 million. A Tribune Publishing buyout of Freedom Communications to consolidate the Los Angeles market would have given it a chain not matched in any other large American city. Without it, this leaves Tribune Publishing the Chicago, Fort Lauderdale, Orlando, Baltimore and Hartford markets as locations where it owns the anchor paper. Chicago does not have a nearby city like San Diego. Fort Lauderdale has the Miami Herald to the south. Miami owner McClatchy Co. (NYSE: MNI), its finances troubled, might sell it. If the paper is not available, Tribune Publishing has no other huge local market to turn to.
Tribune Publishing’s new control shareholder, Michael Ferro, put $44.4 million into the company for a 17% ownership position. The cash was enough to cover most of the $56 million Tribune Publishing was willing to pay for Freedom Communications. However, the $44.4 million has little use, if the company’s goal was to consolidate a newspaper group in the nation’s second largest market.
Ferro does have the opportunity to increase shareholder value and improve Tribune Publishing’s online revenue. However, that was tried by his predecessors, many of whom were newspaper and print experts. Their success was modest, despite what almost certainly were good skills. Ferro’s investment has not sparked much optimism about Tribune Publishing’s future. At $8, the share price has not changed much since his $44.4 million investment. The stock is still down 57% over the past year.
No one knows for certain what the Los Angeles Times and San Diego Union-Tribune are worth. Based on interest from rich local buyers like billionaire Eli Broad (which may have been a rumor), the papers could go for a price nearing the $250 million Amazon.com Inc.’s (NASDAQ: AMZN) Jeff Bezos paid for the Washington Post. Tribune Publishing’s stock would soar under these circumstances. Both Ferro and fellow shareholders would finally get the return on their investments not possible since Tribune Publishing was spun off as an independent company. What would shareholders have then? A cash-rich, smaller public corporation that could buy back a large number of its shares or declare a special dividend. They don’t have that now.
Letter to the Editor:
Tribune Publishing is disappointed in the U.S. Department of Justice’s intervention in the company’s $56 million bid for Freedom Communications, Inc. We respectfully reiterate that the government’s position on this matter does not recognize the current state of the media landscape. Internet-based aggregators take journalism content from leading news brands — like the Orange County Register — and profit at the expense of the content creators.
We will continue advocating for the future of journalism and content creators, and we hope by engaging in that conversation, regulators will change their position. In the meantime, Tribune Publishing remains focused on its strong portfolio of news brands, led by the Los Angeles Times. We are actively engaged in growing the L.A. Times brand and building a global audience. Development of the L.A. Times and California-based acquisitions, such as LA.com, are critical to our strategy to drive revenue for Tribune Publishing and demonstrate the value of journalism.