One week after boosting its broadcasting holdings with the announcement of a deal to purchase 19 television stations, Tribune Co. said Wednesday morning it intends to spin off its publishing business into a separate company.
The move would separate Tribune Co.’s publishing assets, including the Chicago Tribune, Los Angeles Times, The Baltimore Sun and five other daily newspapers, from the Chicago-based media company’s more profitable broadcasting holdings, ending decades of evolution together under one roof.
"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," Tribune Co. CEO Peter Liguori said in a statement. "In addition, the separation is designed to allow each company to maximize its flexibility and competitiveness in a rapidly changing media environment."
A detailed plan is expected to be developed during the next nine to 12 months which, pending board approval, would create Tribune Publishing Co., a separate entity with its own board of directors and senior management team. Tribune Co. stakeholders would receive a tax-free distribution of shares in the new company.
Once completed, only the newspapers and associated publishing assets would move over to the new company. 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, equity interests in Classified Ventures, CareerBuilder and Food Network, and all real estate assets – including Tribune Tower and Freedom Center -- would also remain with Tribune Co.
It was not immediately clear what impact the proposed spinoff might have on the possible sale of Tribune Co. newspapers, which the company has said it is considering. But sources say it would eliminate the substantial tax burden the company would face if it sold the assets outright. Some speculate that the prospects of a spinoff could spur higher bids to compensate Tribune Co. for those taxes.
Tribune Co. is also 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.
Liguori’s memo leaves all options for the newspaper business on the table.
"Pursuing the separation of our publishing and broadcasting businesses will also allow us to maintain flexibility as we continue considering all our strategic alternatives for maximizing shareholder value," Liguori said.
Founded 166 years ago as a newspaper company, the Chicago Tribune diversified into the nascent broadcasting industry in 1924 when Col. Robert R. McCormick put radio station WGN-AM on the air. Acquisitions over the years, including the 2000 purchase of Times Mirror Company, built Tribune Co. into a multmedia empire. But synergy between broadcasting and publishing has proved elusive. Less than a year after the company went private in 2007, it filed for bankruptcy, emerging last December after a four-year stay in Chapter 11.
Liguori, a longtime TV executive who took the reins of Tribune Co. under new ownership in January, has set about to transform the company with a broadcasting focus, positioning it to be a bigger player across the full entertainment spectrum, including the development of more original programming content.
At the same time, the company has been exploring the sale of its publishing business, hiring investment bankers in February to manage inquiries for its eight daily newspapers, which were valued last year at $623 million.
In a memo to employees, Liguori said the separation will strengthen both broadcasting and publishing going forward, as their divergent paths take shape.
"The separation is designed to allow these two companies to have greater financial and operational focus, the ability to tailor their capital structures to specific business needs, and a management team dedicated to strategic growth opportunities with maximum flexibility—in short, each will be a stronger company when separated from the other," Liguori said.
Publishing revenues declined by less than 1 percent to $2 billion for 2012, accounting for nearly two-thirds of operating revenues but only 20 percent of operating profit, according to financial statements released last month. Broadcasting revenues gained 4 percent to $1.14 billion and produced 80 percent of the company’s profit.
"The two companies resulting from this transaction would each have revenues in excess of $1 billion and significant operating cash flow," Liguori said. "We expect that this transaction will serve our shareholders and employees well, and put these businesses in a strong position for continued success."
Subject to regulatory approvals, Tribune Co. would be the latest in a line of high-profile media companies including E.W Scripps, Belo Corp. and most recently News Corp., to split into separate broadcasting and publishing entities.
Last month, Gannett Co. agreed to buy 20 TV stations from Texas-based Belo for $2.2 billion.
Some 40 parties have expressed interest in acquiring some or all of Tribune Co.’s newspapers, according to sources. Would-be buyers were expected to have access in May to a "data room," a secure website containing detailed financial information about the company. That data has yet to be released, according to sources.
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