A boardroom split over Tribune Co.'s stock buyback plan had investors wondering yesterday whether the disagreement was the first move toward putting the media giant into play or simply a negotiation between the company's most powerful players.
Tribune shares rose 31 cents to $30.31 -- its highest in more than two months -- a day after the company disclosed that three of its directors had opposed the refinancing plan unveiled May 30.
The three directors represent the interests of the Chandler Trusts of Los Angeles, which have a 12 percent stake in Tribune. The trusts gained their seats in 2000 after Tribune purchased the Times Mirror Co., the Chandler-controlled publisher of the Los Angeles Times, The Sun and other newspapers.
"Investors are thinking: 'Aha, this could be a company that winds up in play,' " said industry analyst John Morton of Morton Research Inc.
Tribune chief executive Dennis J. FitzSimons said in an e-mail to employees yesterday that the board approved the $2 billion plan by an 8-3 vote and that the Chicago company intended to proceed with the buyback of up to 25 percent of its shares.
The three board members representing the Chandler Trusts asked Tribune to make public their vote against the plan, FitzSimons wrote in the e-mail. Their dissent was noted in a securities filing first reported by The Wall Street Journal.
A spokesman for the trusts that control the Chandler family investments declined to comment, and the three directors didn't return calls.
People familiar with the disagreement and who spoke on condition of anonymity gave two explanations for the schism, while disagreeing over which was a bigger factor.
The first was that the Chandlers believe Tribune should look into solutions such as a sale or breakup of the company before embarking on a financial overhaul involving a stock buyback, which will increase the company's debt sharply.
The second was that the Chandler Trusts and Tribune are squabbling over how to unwind two joint investment partnerships that Tribune inherited when it bought Times Mirror. The two sides are well apart on valuations of the partnerships.
Some investors said they were puzzled over the Chandler Trusts' motives but hoped that potential buyers could emerge or that the management could raise money to take the company private.
"We're all surprised they would vote against something that has sent the stock up 10 percent. We've been sitting around all day speculating," said one big investor, who asked not to be identified because of the sensitivity of the situation. "The only thing I can come up [with] is, they wanted a bigger transaction."
Investment bankers and analysts said it might be easier for Tribune to split itself than to try to attract a buyer at an acceptable price. The recent auction of newspaper chain Knight Ridder Inc. drew one media company bidder: McClatchy Co.
Tribune's buyback has proved popular with many shareholders, because it would increase earnings per share and it represents a bet by the company that the stock price will rise. Tribune is buying back shares at between $28 and $32.50 in a tender offer. It also plans to sell $500 million in assets and cut annual costs by $200 million.
"We believe the announced stock repurchase program is in the best interest of the company and its shareholders," said Charles K. Bobrinskoy, vice chairman of Ariel Capital Management of Chicago, which owned about 3.4 percent of Tribune shares on March 31. He said the buyback "is only the first step in a process of building shareholder value."
Since the beginning of 2004, Tribune shares have fallen from above $50. Other newspaper chains also have suffered from investor concern about slipping circulation and advertising volume as competing media channels proliferate.
Such concern led the three largest shareholders of Knight Ridder to agitate for its sale.
Tribune is viewed as being better protected against a takeover than Knight Ridder, because employees and a foundation controlled by Tribune officials hold more than 20 percent of the company's stock. The vote of the three Chandler directors may signal that Tribune might not be able to count on a 12 percent block that had been considered secure.
"[The trusts] are obviously not pleased with the game plan," said newspaper industry analyst Edward Atorino of Benchmark Co., a New York brokerage.
Joseph Menn writes for the Los Angeles Times.