"For sale" signs are springing up in front of all manner of large media companies. Notable companies that could be facing changes include Tribune
Tribune may be the quickest to experience a meaningful transformation. This large publisher owns major newspapers such as The Los Angeles Times, The Chicago Tribune, Newsday, and The Baltimore Sun, and it's also the operator of broadcast properties from Boston to Los Angeles. Like New York Times, Tribune has received feelers regarding the possible sale of one of its newspapers to locals -- in this case, the Sun.
A more realistic possibility, however, would be the purchase of the entire company -- or most of it -- by one or more of the private equity firms currently circling it. According to TheWall Street Journal, Tribune reportedly will receive indications of private equity interest this week. But with its stock having closed at $33.47 a share on Friday, earlier prognostications that the controlling Chandler family might accept a bid in the mid-$30s may be increasingly unrealistic.
This spate of big media activity has been spurred by sliding advertising revenues as readers and viewers steadily switch to Internet news. This accelerating trend may be impossible to reverse.
Why, then, would private equity types be interested in acquiring these deflating assets? Large media properties, despite their atrophying circumstances, still throw off large amounts of cash. In fact, advertising slowdown or not, Tribune produced a 20% operating margin and dropped nearly 10% of its revenues to the bottom line in 2005. These margins have led to EBITDA that approaches $1.5 billion over the past four quarters.
Private equity investors also enjoy the advantage of being able to operate their companies outside the quarter-to-quarter glare of the public markets. This often allows them a longer-term perspective, allowing them to hone companies far more carefully and systematically.
That's obviously a good thing for private equity owners. But for Foolish investors, until the world of publishing and broadcasting stabilizes, I'd urge you to treat the industry's machinations as you might a Fourth of July fireworks display. Enjoy the show from a distance; if you venture too close, you might get burned.