The opening of a major rift on Tribune Co.'s board, with a bloc of three directors standing in opposition to eight others, may portend more turbulence for the embattled Chicago media concern.
In a regulatory filing Tuesday, Tribune disclosed that directors representing the Chandler family, former majority owners of Times Mirror Co. who hold a key 12.2 percent Tribune stake, had voted against the company's adoption of a high-profile, $2 billion share-buyback plan.
The tender offer "was approved by eight of Tribune's 11 directors," the company noted in a Securities and Exchange Commission filing. The filing spells out an amendment being made to the buyback-offer documents Tribune is mailing to shareholders.
The Chandler board representatives, the filing continues, "have also advised the company that they do not share" the positive opinion of the buyback that Tribune management expresses in the buyback offering document.
The surprise filing opened the window on what one source close to the situation said was a long-simmering negotiation between Tribune and its second-largest shareholder concerning how to boost the company's stock price, which has fallen 40 percent over the last two years.
The initial response to Tuesday's filing generated widespread speculation about how the standoff might affect Tribune's recently announced plan to borrow heavily and buy back a quarter of its common stock.
The negotiation is complicated by the Chandler family's extensive holdings in the company and its desire to protect those holdings from exposure to taxes, the source said.
The family owns a block of Tribune stock worth $1.1 billion resulting from Tribune's 2000 purchase of Times Mirror. It also owns a large interest in two partnerships that hold $3.55 billion worth of assets. Those include Tribune stock, various investments and the buildings that house the Los Angeles Times, The Baltimore Sun and Newsday, sources said.
"It's all a big poker game related to pieces [the Chandlers] control," the source said.
Although Tribune said it was moving ahead with its plan, the announcement sparked speculation that the Chandlers' opposition might delay the buyback or force the company to grant concessions of some sort to the family. Some analysts also suggested the family's public opposition could cause Tribune to become a takeover target.
"The Chandlers have played a card, but you don't know what's in their hand," said longtime publishing industry analyst Ed Atorino of Benchmark Co.
Attempts to reach the Chandler family were unsuccessful. On Wednesday, Tribune Chairman and Chief Executive Dennis FitzSimons e-mailed employees to emphasize that the buyout offer, slated to close on June 26, remains on track.
"We amended our tender-offer filing at the request of the Chandler Trust representatives on the board," FitzSimons wrote.
Companies aren't normally obliged to divulge the breakdown of board votes, only the results, but FitzSimons didn't say why the family had decided to make an issue out of the vote.
A Tribune spokesman wouldn't comment beyond what FitzSimons told employees.
In New York Stock Exchange trading, Tribune shares closed up 31 cents, at $30.31.
One Tribune source dismissed the suggestion that there was a destabilizing board split, suggesting that the Chandlers may be maneuvering to create uncertainty on the buyback plan, potentially raising the tender offer price.
Some sources speculated the Chandlers could be opposed to a stock buyback for other reasons, particularly the family's long history of protecting itself from taxes. Because the family has held its stock for many decades, its tax basis is tiny. That means any sale would likely trigger a big tax burden.
When the Chandlers wanted to diversify their holdings in the mid and late 1990s, they went to great lengths to avoid paying taxes by shifting some of their stock into two complicated partnerships with Times Mirror that effectively swapped dividend income for income from real estate rents and other investments. Tribune ultimately inherited those partnerships.
The Chandlers also worked hard to avoid any major tax hit in the Tribune's purchase of Times Mirror.
If the family were to tender its shares in a stock buyback, it could be forced to pay capital gains tax on any profit accumulated over the years. And that would be a bitter pill to swallow, having already watched the stock's slide in the last two years to a price below the one the family accepted when Tribune bought Times Mirror.
Some speculated the Chandlers might prefer to seek a sale of the company or see the board release value by breaking it into pieces. The family has not filed with the SEC, as would be required to indicate such a move.
Asked about the Chandlers' intentions during a May 30 conference call, FitzSimons said: "I don't think you should read anything into the Chandler decision or no decision; it's just that they're evaluating what their position will be relative to the tender."
Tuesday's move offered more reading material.
"Who knows now whether [the Chandlers] are trying to stir things up, creating opportunities and leverage for themselves," said one source close to the situation.
What's clear is that the tangle of relationships between Tribune and the Chandlers will be difficult to unravel.
The Wall Street Journal, citing unnamed sources, reported Wednesday that a critical sticking point between the Chandlers and Tribune is a disagreement over the valuation of the two large partnerships inherited from Times Mirror.
The article said the Chandlers are concerned that Tribune's maneuver might impinge on the "tax efficiency" of the partnerships.
firstname.lastname@example.org; email@example.com; firstname.lastname@example.orgCopyright © 2014, The Baltimore Sun