In Depth

With Bankruptcy Exit, Tribune Co. Could Be Broken Up

By Lynne Marek
Crains Chicago Business

When Tribune Co. exits bankruptcy under new owners next year, its flagship newspaper is likely to go on the sales block, but that's not all.

A host of other Chicago assets in the Tribune media empire, from WGN Radio to Chicago magazine to the neo-Gothic Tribune Tower itself, could be offered to buyers who have circled the properties for years.

Any sale of Chicago assets could further loosen Tribune's ties to a city that has been home since 1847, following the move last year of its CEO post to Los Angeles and the coming ownership shift to East Coast financial firms. It also would restart the dismantling—paused after the 2009 sale of the Cubs—of a $7 billion media company cobbled together during the previous three decades.

“In 2013, everything will be in play” at Tribune, predicts Michael Ferro, who led a group of investors to buy Sun-Times Media Holdings LLC, the city's No. 2 newspaper company, last year and the Chicago Reader this year. Tribune spokesman Gary Weitman declines to comment.

The three largest new Tribune owners will be investment firms Oaktree Capital Group LLC of Los Angeles and Angelo Gordon & Co. of New York, as well as New York-based JPMorgan Chase & Co. Oaktree will hold the biggest stake, at 22 percent. Delaware Bankruptcy Court Judge Kevin Carey gave initial approval to Tribune's reorganization plan on July 13, putting the company on a path to exit Chapter 11 protection next year or late this year.

Although Angelo Gordon owns other newspaper companies, and Oaktree has purchased debt in other broadcast outlets, both companies typically don't hold assets long term. Instead they maximize investments through quick sales or initial public offerings. Because the IPO market has been weak, piecemeal sales are more likely.

Some in Mr. Ferro's group privately mulled purchasing the Chicago Tribune and combining it in some fashion with the Chicago Sun-Times, according to sources. They've denied any interest in the newspaper, but that could be a feint to keep the price in check, given attention in the industry sparked by billionaire Warren Buffett's newspaper purchases.

Mr. Ferro, chairman of Sun-Times Media owner Wrapports LLC, would “love to be the only guy in the market, but I don't think he will be,” says Jim O'Shea, a former managing editor of the Tribune who led the Chicago News Cooperative, where Mr. Ferro was a board member.

Because the fortunes of the newspaper and broadcast industries have diverged so much in recent years, with print losing to online competition, most industry professionals expect Tribune to sell its newspaper assets, including the Los Angeles Times, separately from the broadcast properties, such as WGN-TV/Channel 9 in Chicago and WPIX-TV in New York. The value of Tribune's broadcast operations rose during the past year, while the newspapers' value dropped, according to Tribune bankruptcy documents.

“TV properties are going for a lot higher multiples” of price to earnings, says Doug Arthur, a media analyst at Evercore Partners Inc. in New York. “The TV business is pretty good right now. Auto (advertising) has come back strong. Political (advertising) is going to be at record levels.”

Even in Chicago, where Tribune has a rare big-city triple play of newspaper, radio and TV properties, most industry professionals say there likely aren't enough synergies to hold them together even if the Federal Communications Commission continues to allow one company to own all three.

“Any broadcast company that would be interested in the (Chicago) properties would in all likelihood not want to have to acquire the newspaper also,” says Robert Heymann, who leads the Chicago office of Media Services Group Inc., a Jacksonville, Fla.-based media brokerage.

WGN Radio, 720 AM, should attract a lot of interest. While Hubbard Broadcasting has said it would consider a purchase, it also could be a good fit for Atlanta-based Cumulus Media Inc. or even Merlin Media LLC, a Cincinnati radio company run by former Tribune CEO Randy Michaels.

“WGN Radio has been and is one of the premier radio stations in the entire country,” Mr. Heymann says.

Aside from the newspaper and broadcast operations, Tribune's stakes in Chicago magazine and Classified Ventures LLC have attracted potential buyers in the past, according to sources, and the company tested the market for its tower on North Michigan Avenue in 2008. The landmark Wrigley Building across the street fetched $33 million last year.