After weeks of infighting and boardroom intrigue over a controversial $2.5 billion stock buyback plan, Tribune Co. announced Tuesday that it will repurchase 45 million of its shares for $32.50 each.
That number, which represents 15 percent of the shares outstanding, is 8 million fewer than Tribune Chairman and Chief Executive Dennis FitzSimons had hoped to retire in a Dutch auction that closed late Monday night.
The result signaled that after a spirited effort by California's wealthy Chandler family to kill the deal, most Tribune shareholders may be hungry for more than a stock buyback from the owner of the Chicago Tribune and the Los Angeles Times.
Some large holders speculated that the Chandlers are likely to seek partners in an effort to push harder for an eventual breakup. Analysts also warned that the real work is just beginning in FitzSimons' battle with his second-largest shareholder for control of the company's future.
"Now it is back to business as usual, and business as usual in the newspaper business is not that good," said Alexia Quadrani, an analyst at Bear Stearns in New York.
Said FitzSimons in a statement: "This leveraged recapitalization represents a very meaningful step in our plan to enhance value for shareholders. Our priority now is revenue growth and improving the company's operating performance through a combination of top-line growth initiatives and additional cost savings. We'll also continue to move forward on the dispositions of non-core assets."
With a raft of Wall Street analysts pricing Tribune assets as high as $46 a share in various breakup scenarios, many of the company's largest shareholders appear to be anticipating a bigger catalyst to drive the stock price higher. Speculation has run the gamut from a spin-off of the company's 24 television stations to a sale of one or more of its 11 daily newspapers. A source close to the Chandlers said recently that the family has discussed its options with various cash-rich private-equity firms possibly interested in financing a deal.
"I don't view $32.50 as a fair price for the company, so I wasn't going to sell into the auction," said Brian Rogers, chief investment officer of T. Rowe Price, among Tribune's top shareholders, with 15 million shares. Rogers, in fact, said he boosted the holdings in his Equity Income Fund by 15 percent on Tuesday, joining a buying binge that drove the shares 5 percent higher, to close at $32.47, a smidgen under the tender price.
"All the ingredients are in place for more excitement," Rogers said.
The main ingredient for change at this point is the Chandler family, which adamantly opposed the buyback plan for tax reasons and has been publicly agitating for a breakup.
"We, like many other non-tendering stockholders, believe there is greater value to be realized through prompt and meaningful strategic action," a representative of the family's interests said in a statement Tuesday.
Although the family lost its bid to halt the tender offer, the Chandlers' potential influence--and wealth--is only growing as a result of the buyback plan.
Since mid-May, the family's 12.2 percent stake in the company has grown in value by more than 17 percent, to $1.2 billion. And having withheld their shares from the tender offer, two Chandler family trusts are set to emerge as Tribune's largest shareholder bloc once Tribune completes the final two stages of the buyback.
In mid-July, the company will repurchase 10 million shares from the McCormick family foundation at $32.50 a share and will commence the buyback of 20 million additional shares on the open market. If all goes as planned, the Chandlers will control 15.4 percent of the stock, compared to the McCormick foundation's 13.1 percent.
But in the six years since Tribune paid $8.3 billion for Times Mirror Co., which the Chandlers controlled, their investment has languished, prompting calls for more aggressive action. Moreover, the tender offer tends to erode the value of various assets held in two controversial partnerships worth $3.5 billion co-owned by the family and Tribune.
So far, the non-Chandler members of Tribune's board have stood firmly by FitzSimons in the dispute with the Chandlers, voting unanimously to support the buyback and backing him in response to the family's attacks.
But one major shareholder, who asked not to be named because of the sensitivity of the situation, said that the board's support is not unconditional and that several directors have been unhappy with the slide in the stock since FitzSimons became CEO in 2003. They rode to his support publicly after the Chandlers forced them to choose sides.
These board members don't want to be dictated to by the Chandlers, the shareholder said. But "the board wasn't just saying, `Let's just cut a few headcount and everything is fine.' This is a mess."
As part of the buyback announcement, Tribune said it would cut $200 million in costs and sell $500 million in assets.
A Tribune spokesman said the company would not comment on board matters.
Rogers at T. Rowe Price said he doesn't know what the board is thinking but that in an era of intense focus on corporate governance, "boards are behind you until they're not."
If FitzSimons doesn't get the stock up, somebody else will, he predicted. "We're agnostic about who can get there more effectively," he said.
Quadrani at Bear Stearns said she expects the stock to drift downward over the next several months. Fixing the newspapers is a long-term project that most observers believe requires editorial innovation, particularly in adapting traditional print products to the Internet. That process could take years.
In the meantime, Quadrani noted, early indications are that June print revenues are slumping for most of the industry after a strong showing in May, putting pressure on second-quarter results due out in July.
Despite abundant talk about spinning off Tribune television stations in a tax-free deal, analysts and investors said that, too, could be problematic.
First of all, the two big Chandler/Tribune partnerships would have to be unwound before a tax-free deal would work, and that's already been a source of contention. It's also likely that much would hinge on the success of the CW network, which is replacing the failing WB and UPN networks and will be carried on 15 Tribune stations.
The Chandlers have complained that management has been dragging its heels on a spin-off out of a "desire to wait to see how the new CW network performs" when it launches this fall. But despite those objections, several analysts and other investors said waiting probably makes sense at this point, given that it's unclear how the CW will do.
"Everyone is imagining the CW as being a glamorous brand new network, and quite frankly I think it will be more like UPN and the WB put together," said Tucson-based radio and TV broker Fred Kalil of Kalil & Co.
All of this could add up to a summer in the hot seat for Tribune executives as they search for ways to improve performance. One advantage: They can continue to buy back stock. Investors said the gradual buying should put a floor under the stock at around $30 to $32. But eventually the market will likely be looking for a higher share price.
"The big shareholders are like vigilantes," said Colorado hedge fund operator Jerry Paul of Quixote Capital Management. "Sooner or later the lynch mob will come after [management] if they don't see something happen."