The Baltimore Sun's owner said Wednesday that it plans to spin off its newspapers as a separate company, the latest move in the Tribune Co.'s effort to focus on the more profitable broadcasting industry.
Chicago-based Tribune said its publishing assets, which include the Chicago Tribune, Los Angeles Times and six other daily newspapers, would be split off with its own board and senior management while the rest of Tribune's holdings — including its television stations and real estate — would stay with the original company.
The plan comes about a week after Tribune announced a deal to purchase 19 television stations, bulking up its broadcasting holdings.
The separation announcement likely delays any potential sale of the publishing assets until next year. But a spinoff would bring a tangible benefit, analysts say: It would allow the company to offload its newspapers while avoiding the large capital gains tax it would incur from an outright sale.
"It's an astute move," said Robert Willens, a New York-based tax analyst. "After the spinoff occurs, the sale can take place, at which point the corporation is off the hook for any taxes."
Multiple media reports have named a number of possible buyers for Tribune's newspapers, including Koch Industries, a closely held company controlled by the billionaire Republican donors Charles and David Koch, and Rupert Murdoch's News Corp. Others named include Berkshire Hathaway and Freedom Communications.
Locally, a loosely organized group including Ted Venetoulis, a former Baltimore County executive, and developer David S. Cordish said Wednesday they would like to collaborate on a potential purchase if The Baltimore Sun is made available for sale. Cordish is chairman of the Baltimore-based Cordish Cos., which owns properties such as Power Plant Live and the Maryland Live Casino.
Venetoulis said Tribune has yet to share any financial data with the group.
The steps that Tribune CEO Peter Liguori is taking to shape the company's future around broadcasting are a departure from Tribune's long-held belief in the power of media cross-ownership.
"Moving to separate our publishing and broadcasting assets into two distinct companies will bring single-minded attention to the journalistic standards, advertising partnerships and digital prospects of our iconic newspapers, while also enabling us to take advantage of the operational and strategic opportunities created by the significant scale we are building in broadcasting," Liguori said in a statement.
Tribune's financial results show why company officials would rather focus on television.
The company's publishing revenue declined less than 1 percent last year to $2 billion, accounting for nearly two-thirds of operating revenue but only 20 percent of operating profit, according to financial statements released last month. Broadcasting revenue — by contrast — grew 4 percent to $1.14 billion and produced 80 percent of the company's profit.
A detailed spinoff plan is expected to be developed in the next nine to 12 months. Pending board approval, the move would create Tribune Publishing Co.
Tribune shareholders would receive a tax-free distribution of shares in the new company.
Only the newspapers and associated publishing assets would move to the new entity. Tribune Co. would retain all other holdings, including 42 local television stations upon the closing of last week's announced $2.73 billion acquisition of Cincinnati-based Local TV LLC.
National cable channel WGN America, WGN Radio, Tribune Studios, Tribune Digital Ventures, Tribune Media Services, all real estate and the equity interests in Classified Ventures, CareerBuilder and Food Network would also remain with Tribune Co.
The company is faced with the possibility of owing more than $500 million in capital gains taxes to the Internal Revenue Service from the divestments of Newsday, the New York newspaper, in 2008, and the Chicago Cubs in 2009, which were structured as leveraged partnerships rather than outright sales. That complex strategy has been challenged by the IRS, and any tax liability will likely remain with Tribune Co. after the spinoff, according to sources.
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