Chandler family urges sale or breakup of Tribune Co.

THE BALTIMORE SUN

The former owners of the Los Angeles Times escalated their attack on the newspaper's parent company yesterday, calling publicly for a breakup or sale of Tribune Co. after years of "disastrous" inaction and a 38 percent decline in the stock price.

Representatives of the Chandler family, Tribune's second-largest shareholder, said the company should spin off its 26 television stations and consider selling some or all of its 11 papers, which include the Times, the flagship Chicago Tribune, The Sun and Newsday. Tribune, the No. 3 newspaper chain by circulation, also owns the Chicago Cubs baseball team.

Without such moves, the Chandlers warned in a letter to the board that they would use their more than 12 percent stake in Tribune -- acquired in 2000 when Tribune bought Times Mirror Co. -- to push for new management. They also threatened to ally themselves with other investors if their demands are not met. The letter was included in a Securities and Exchange Commission filing.

For several months, the Chandler family has fielded inquiries from private investment firms and wealthy individuals interested in making a run at buying some or all of Tribune, but hasn't had serious talks, according to people tracking the developments closely.

"The Chandlers are stirring the pot up," said industry analyst Edward Atorino of Benchmark Co., adding that following the family's proposals would lead to substantial returns. "There's a value number here that's much higher than the current stock price."

The letter released yesterday provided the first glimpse into what motivated the Chandlers to vote against Tribune's plan, announced May 30, to take on more than $2 billion in new debt to buy back 25 percent of the company's stock.

Tribune's shares have risen in recent days as investors' expectations grew that the Chandlers' dissent might force a more dramatic restructuring. After the letter was disclosed yesterday, the stock rose 2.9 percent to $31.94. Tribune's tender offer has a maximum price of $32.50.

In an e-mail sent to Tribune employees late yesterday, Tribune Chief Executive Officer Dennis J. FitzSimons challenged the Chandlers' filing, saying, "Many of the assertions in the letter are inaccurate."

In a statement, Tribune rejected the Chandler demands, saying that it has studied the same ideas before.

"Tribune's board of directors evaluated a broad range of strategic alternatives at numerous meetings over a period of months" before choosing a stock buyback and other moves, lead independent director William A. Osborn said in a written statement.

When Tribune bought Times Mirror, it said it would capitalize on the combination of major newspapers with television stations in Los Angeles, New York and Chicago. While the Chandlers backed the plan at the time, "this strategy has failed," William Stinehart Jr., one of three family representatives on the 11-member Tribune board, wrote in the 10-page letter.

"Given the risk of a continued deterioration in the company's primary businesses, if a separation of the newspaper and broadcast businesses or other strategic steps relative to the newspaper business cannot be accomplished by the end of the year, then the possibility of an acquisition of Tribune as a whole should take priority," he wrote.

In part, the conflict shows the extent of investor dissatisfaction with newspaper company stocks, which have fallen along with decreases in circulation and advertising volume as people turn to the Internet. Another major chain, Knight Ridder Inc., is being bought and partially dismembered as result of investor pressure.

"It's increasingly difficult to be a public media company today, because we're in a period of transition between print and online and the performance sometimes is choppy and doesn't translate to quarter-to-quarter growth all of the time," said Dean Singleton, chief executive of privately held chain MediaNews Group Inc., which is buying the San Jose Mercury News and three other Knight Ridder papers and will be the fifth-largest U.S. publisher. "The long-term future of media in my view has never been better, but the road from here to there may be a little uneven."

McClatchy Co., which is buying Knight Ridder and keeping 20 of its papers to become the No. 2 chain, has public stock but remains under family control. The publishers of The New York Times, The Wall Street Journal and The Washington Post are also family-controlled, as was Times Mirror until Tribune bought it.

The Chandlers had previously objected to the Tribune offer to repurchase more than $2 billion worth of its own stock, an attempt to return cash to investors and lift per-share earnings. But the prominent Los Angeles family hadn't said what steps it would prefer.

Both the declaration of specific goals and the harsh tone of the letter to the board took some shareholders by surprise.

"They're kind of declaring war on management," said a major investor who speaks regularly with Tribune executives and generally backs the board. "I just didn't realize it had gotten so bad."

The Chandlers called on Tribune's board to name a committee of independent directors to plot strategy, suggesting that management couldn't be objective. They also said another planned round of cost cuts would further erode quality and depress morale, already low at the company's papers.

In a survey of all Times employees conducted in August and September, only 36 percent of respondents agreed that they "believe strongly in the goals and objectives of Tribune Co."

Tribune's statement didn't address the issue of a special committee. But FitzSimons defended his plan for improving operations, including "continued expansion of our Internet portfolio, the sale of noncore assets, and additional cost-saving initiatives."

Investors agreed that Tribune has performed poorly, but noted that many of the problems were inherited from Times Mirror. Those include a circulation scandal at Newsday, a $1 billion tax bill for questionable accounting and declining subscriptions at the Times.

"The merger has been a very big failure," Atorino said.

Analysts and investors cited by the Chandlers said Tribune could fetch from $42 to $46 a share after a restructuring.

Joseph Menn writes for the Los Angeles Times.

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