Tribune to unwind key partnerships in bid to boost stock

The Baltimore Sun

CHICAGO -- After a five-hour board meeting yesterday, Tribune Co. Chief Executive Officer Dennis J. FitzSimons said he will substantially restructure the company and agreed to be monitored by a committee of independent board members as management explores alternatives.

"Everything's on the table," FitzSimons said after the meeting, noting that the committee will review a range of options, including taking the company private in a leveraged buyout, spinning off the company's television stations and selling various newspapers.

The committee hopes to approve a plan by the end of the year.

As anticipated, FitzSimons and California's wealthy Chandler family also managed to forge a deal to unwind two Chandler partnerships at the center of a dispute that has raged between the company and its largest shareholder since June.

The move not only gets rid of a major distraction, but makes possible a much wider range of restructuring options since the partnerships have precluded many alternatives for tax reasons.

"We feel our interests are aligned," FitzSimons said of the Chandlers.

What didn't come up at the meeting was what to do about the Los Angeles Times. Despite a week of turmoil at the paper, FitzSimons indicated after the meeting that the Times probably is not among the sale candidates.

He said there was no discussion of the Times situation at the board meeting, which focused squarely on unwinding the Chandler partnerships and finding ways to boost the company's sagging stock price.

If Times Editor Dean Baquet's job is in jeopardy since publicly declaring his reluctance to proceed with Tribune-mandated staff reductions, FitzSimons gave no indication of it.

Instead, he complimented Baquet, saying he has been doing a good job since taking over the Times newsroom last year.

Unwinding the complex Chandler partnerships, which Tribune inherited when it bought Times Mirror Co. in 2000, is a major step forward. Called TMCT I and TMCT II, they were formed in 1997 and 1999, respectively, and were designed to allow the Chandlers to diversify their Times Mirror holdings through a tax-free swap of family stock for company assets.

Contributed property

The Chandlers originally contributed preferred stock and common stock, and Times Mirror contributed real estate occupied by the Los Angeles Times, Newsday, The Sun and the Hartford Courant. It also put in some cash that was invested in various ventures. Altogether, the partnerships had about $3.5 billion in assets.

In the deal announced last night, Tribune will get all of the preferred stock and 39.5 million shares of the common stock in the partnerships. It will also receive the right to acquire the real estate occupied by its papers in January 2008 for $175 million and will retain a 5 percent ownership in the partnerships.

The Sun properties, owned by one partnership, are assessed at about $66 million. They include The Sun's headquarters in the 500 block of N. Calvert St.; an office building-parking garage next door, and the Sun Park printing facility on Cromwell Street in Port Covington.

Before the partnerships were created, Times Mirror discussed a $10 million sale and leaseback of the Calvert Street properties with the Johns Hopkins Institutions, which planned a major renovation. But the sale was delayed by complications and was finally scrapped in 1997, after Times Mirror and the Chandlers formed their partnership.

Joseph M. Cronyn, a partner with real estate consultants Lipman Frizzell & Mitchell, said both the downtown and Port Covington parcels have redevelopment potential - with or without The Sun as a tenant.

FitzSimons said both the stock and real estate aspects of the deal made sense because they allow Tribune to stop paying an 8 percent dividend on the preferred stock and will reduce the company's real estate costs by owning, not leasing, the real estate.

FitzSimons said in an e-mail to Tribune employees last night that the deal "benefits all Tribune shareholders.

"Among the advantages, it simplifies our capital structure by eliminating all preferred stock; has no impact on Tribune's earnings; and it frees the company to explore all strategic value-creating alternatives."

The Chandlers will get 95 percent ownership of what remains in the partnerships and will get 11.8 million shares of common stock. As a result, the Chandlers' stake in Tribune will increase to 48.7 million shares, or 19.6 percent of those outstanding, from 36.9 million shares, or 15 percent.

The catch is that the Chandlers also have agreed to vote the new shares in the same way as other shareholders for a period of 12 months. That means they can't align those 11.8 million shares with a dissident shareholder unless all other investors do, too.

That gives FitzSimons some relief - for a year at least - as potentially unfriendly investors, such as billionaire activist shareholder Nelson Peltz, accumulate Tribune shares and look to profit from a restructuring.

Chandlers on board

For now, the Chandler family appears to be on board with Tribune management.

"We will now work collaboratively with management and the board to build value for all shareholders," Warren B. Williamson, chairman of the Chandler Trusts, said in a statement.

At least one other big, vocal investor was pleased as well.

"Ariel has continuously expressed confidence that the strong board and management of Tribune would take steps to realize the intrinsic value of the company," said Charles K. Bobrinskoy, vice chairman of Ariel Capital Management, a Chicago money management firm that owns 6 percent of Tribune's stock.

"Today's actions make clear that this confidence is being rewarded."

Tribune's stock rose $1.36 to $32.05 yesterday on the New York Stock Exchange.

Michael Oneal and Phil Rosenthal write for the Chicago Tribune.

Sun reporter Jamie Smith Hopkins contributed to this article.

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