One thing that's inherent in the investment process is an effort to predict the future. And so, with essentially all the newspaper publishing companies struggling with reduced advertising revenues as we complete 2006, I'm forced to wonder whether Tribune Company (NYSE:TRB) will even remain in its current state through at least its May 9 annual meeting.
Let's quickly review the bidding here: The company -- like several of its peers -- has been a veritable thrill a minute over the past few months, as various private equity firms have conducted tire-kicking expeditions regarding the company's assets; Southern California neighborhood billionaires have ogled its Los Angeles Times newspaper (and one -- namely music mogul David Geffen -- has reportedly offered to pony up $2 billion for the paper); and a group of its executives, led by CEO Dennis FitzSimons, reportedly is working with private equity types regarding a potential bid for the company.
Tribune, like New York Times (NYSE:NYT), Gannett (NYSE:GCI), McClatchy (NYSE:MNI), and Belo (NYSE:BLC), is struggling to at least approximate prior years' results in the face of declining readership and falling advertising volumes. And last week, Goldman Sachs media analyst Peter Appert issued a report in which he said he sees no signs of life in national advertising spending. He further opined that expectations of low single-digit advertising revenue growth for newspapers next year will prove optimistic.
And back at Tribune, representatives of the Chandler family, which owns 20% of the company's stock, reportedly were in Chicago late last week for meetings with seven private equity firms interested in acquiring the company. The firms apparently constitute two teams of three firms each, along with a separate firm, Boston's Bain Capital. Tribune management also has reportedly met with representatives of Gannett regarding the possibility of a combination.
And as if all this activity and confusion weren't enough, down the road in Dallas at Belo, the company's increased leverage reportedly has it with one foot in junk-bond territory. Both Standard & Poor's and Moody's have essentially warned of downgrades for the company in the face of a debt level that has escalated materially in the past couple of years. S&P has in fact downgraded the company once to BBB, its second-lowest investment grade, and has said that the company may face yet another cut.
At the same time, McClatchy apparently has cooled on Minneapolis and sold that city's Star Tribune newspaper to private equity firm Avista Capital Partners for total proceeds of $690 million, or just more than half what it paid Cowles Media for the property in 1998. The relatively low price probably demonstrates the paper's high union representation and its heavy exposure to classified and national advertising.
So the world of newspaper publishing has become, with few exceptions, more than a little chaotic. I think it's an area Fools would be well advised to eschew as they determine their sector allocations for 2007.
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Fool contributor David Lee Smith is a former journalism professor and media analyst who is saddened by the demise of the local fish wrapper. He does not own shares in any of the companies mentioned. The Fool's disclosure policy often wears a jaunty hat.
