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Key Board Members' Opposition Could Spell Trouble for Tribune

Posted on: Thursday, 8 June 2006, 00:00 CDT

CHICAGO _ The opening of a major rift on Tribune Co.'s board _ with the Chandler family's three representatives standing in opposition to Tribune's eight other directors _ may portend more turbulence for the embattled Chicago media concern.

In a Tuesday regulatory filing, Tribune disclosed for the first time that the Chandler directors, who represent a key 12.2 percent holding, had voted as a bloc against Tribune's adoption of a high-profile, $2 billion share buyback plan.

The tender offer "was approved by eight of Tribune's eleven directors," the company noted in a Securities and Exchange filing. The filing spells out an amendment that's being made to the buyback-offer documents Tribune is mailing to its shareholders.

The Chandler board representatives, the filing continues, "have also advised the company that they do not share" the positive opinion of the buyback that Tribune management expresses in the buyback offering document.

The surprise filing opened the window on what one source close to the situation said was a long-simmering negotiation between Tribune and its second largest shareholder concerning how to boost the company's stock price, which has fallen 40 percent in the last two years.

That negotiation is complicated by the Chandler family's extensive holdings in the company and its desire to protect those holdings from exposure to taxes, the source said.

Those include Tribune stock, various investments and the buildings that house the Los Angeles Times, The Baltimore Sun and Newsday, sources said.

"It's all a big poker game related to pieces (the Chandlers) control," the source said.

The initial response to Tuesday's filing generated widespread speculation about how the Chandler/Tribune standoff might affect Tribune's recently announced plan to borrow heavily and buy back a quarter of its outstanding common stock.

Although Tribune averred it was moving ahead with its buyback plan, there were rumors that the Chandlers' opposition might delay Tribune's buyback, or force the company to grant concessions of some sort to the family. There was speculation that the family's balkiness could cause Tribune to become a takeover target.

"The Chandlers have played a card, but you don't know what's in their hand," said longtime publishing industry analyst Ed Atorino, of Benchmark Co.

The Chandler family couldn't be reached for comment. On Wednesday, Tribune Chairman and Chief Executive Dennis FitzSimons e-mailed employees to emphasize that the buyout offer, slated to close on June 26, remains on track.

"We amended our tender offer filing at the request of the Chandler Trust representatives on the board," FitzSimons wrote.

Companies aren't normally obliged to divulge the breakdown of board votes, only the results, but FitzSimons didn't say why the family had decided to make an issue out of the vote.

In New York Stock Exchange trading, Tribune shares closed up 31 cents, or 1.0 percent, at $30.31.

One Tribune source dismissed the suggestion that there was a destabilizing split in the board, suggesting that the Chandlers may be maneuvering to create uncertainty in the Dutch auction, potentially raising the price of the tender offer.

That might be wishful thinking. Other sources speculated the Chandlers could be opposed to a stock buyback for other reasons. Exhibit A is the family's long history of protecting itself from taxes. Because the family has held its Tribune stock (or shares in predecessor companies) for many decades, its tax basis is tiny. That means any sale would likely trigger a big tax burden.

When the family wanted to diversify its holdings in the mid- and late 1990s, it went to great lengths to avoid paying taxes by shifting some of its stock into two complicated partnerships with Times Mirror that effectively swapped dividend income for income from real estate rents and other investments. Tribune ultimately inherited those partnerships.

The Chandlers also worked hard to avoid any major tax hit in the Tribune's purchase of Times Mirror.

If the family were to tender its shares in a stock buyback, it could be forced to pay capital gains tax on any profits it has accumulated over the years. And that would be a bitter pill to swallow, having already watched the stock's slide in the last two years to a price below the one the family accepted when Tribune bought Times Mirror.

Some speculated that the Chandlers might prefer to seek a buyer for the company, or see the board release value by breaking it up into pieces. So far, however, the family has not filed with the SEC as would be required to indicate such a move.

Asked about the Chandlers' intentions during a May 30 conference call, FitzSimons said: "I don't think you should read anything into the Chandler decision or no decision; it's just that they're evaluating what their position will be relative to the tender."

Tuesday's move offered more reading material.

"Who knows now whether (the Chandlers) are trying to stir things up, creating opportunities and leverage for themselves," said the source close to the situation.

What's clear is that the tangle of relationships between Tribune and Chandlers will be difficult to unravel.

The Wall Street Journal, citing unnamed sources, reported Wednesday that a critical sticking point between the Chandlers and Tribune is a disagreement over the valuation of the two large partnerships inherited from Times Mirror.

The article said the Chandlers are concerned that Tribune's maneuver might in some unexplained manner impinge on the "tax efficiency" of the partnerships and is being advised by Goldman Sachs on how to resolve the situation.

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(c) 2006, Chicago Tribune.

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Source: Chicago Tribune

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