Tribune Stations: Not For Sale-Yet

Jun 19, 2006  •  Post A Comment

The conflict between Tribune Co.’s board of directors and members of the Chandler family, the company’s second biggest shareholder, is raising questions about the future of Tribune’s 25 television stations.

The Chandler Family Trust, which holds three board seats, last week escalated tension with the board by demanding Tribune split its print holdings from its TV station unit and criticizing a planned share buyback meant to bolster the company’s stock.

The failure of Tribune’s strategy of owning both newspaper and TV stations in local markets is partly to blame for the stock slump, the Chandlers said in their June 13 letter. Seven of the eight other board members replied the next day, defending the stock buyback plan.

Tribune had been peeling off some stations before the Chandlers started prodding. Earlier this month, the Chicago-based company sold off WATL-TV in Atlanta to Gannett for $180 million. WPHL-TV in Philadelphia and KTWB-TV in Seattle are also reportedly on the block. All three stations are slated to become MyNetworkTV affiliates in the fall.

The Chandlers’ push to break up the company put the future of Tribune’s other stations in question as the market for those properties regains some of the momentum it had before the 9/11 terrorist attacks, when stations sold for about 15 times cash flow.

The costs of transitioning to digital signals, insecure relations between stations and networks and uncertainty over how media ownership rules may be recrafted have pushed station values down and kept the market from regaining some of the steam it lost.

Despite those deterrents, companies have been strategically looking to buy and sell stations that serve their their corporate needs. “You’ve seen these sporadic bunches sold,” said Edward Atorino, managing director of financial analysis firm Benchmark Co. “It has not been an inactive market.”

NBC Universal recently sold four of its stations to Media General for $600 million, which Mr. Atorino said was higher than 10 times cash flow. That sale came after NBCU bought a station in Las Vegas. The company also plans other purchases. Raycom Media recently has bought stations from Emmis Communications and purchased all of Liberty Corp.

A strong debt market makes financing a purchase attractive. But potential buyers may be scared off by the pummeling McClatchy Company’s stock took when it bought Knight Ridder’s assets earlier this year. While that sale only dealt with print properties, comparisons can still be drawn to TV station purchases.

With the Chandler Trust breathing down Tribune’s neck, the likelihood of a sale of the company’s stations is about “50-50,” Mr. Atorino said.

“The ball is now in the court of the Chandlers,” he said, noting Tribune is going through with cost cutting, selective station sales and the buyback strategy. The Chandlers are taking on a united Tribune board, Mr. Atorino said.

To placate the Chandlers, Tribune Chairman, President and CEO Dennis FitzSimons could take the middle ground and sell more stations, Mr. Atorino said. “He wants to rebuild the earnings and get the stock price back up, and there are other ways to accommodate what the Chandlers want to do,” he said.

The value of some Tribune stations will depend on how the market perceives the value of being affiliated with the soon-to-launch CW network, said Mark Fratrik, VP of media investment and consulting company BIA Financial.

Tribune, which had a 22 percent ownership in The CW predecessor The WB network, holds stations with The CW in many major markets, including the top three. It’s not a partner in the CBS Corp.-Time Warner-owned The CW, but those affiliations may help Tribune’s TV holdings, Mr. Atorino said.

“It adds value,” he said. “As WB stations, they were heading downhill. There were big problems in prime time. The CW, with their pedigree, ought to do much better than The WB did.”

There are other uncertainties. Who would buy the stations is a question because any major buyer would have ownership conflict with the purchase of a Tribune station, Mr. Fratrik said.

Tribune has insisted it will keep all its media holdings in the top three markets, including TV stations.