I suppose nothing better illustrates the declining value of newspaper assets than the highest offer -- all things being relative -- that Tribune (NYSE:TRB) received last week for the company's acquisition. Admittedly, the $7.6 billion proffered by its largest shareholder is predicated in part upon a subsequent spin-off of the broadcast division, but it nevertheless is less than the total of $8 billion the company paid just seven years ago for Times Mirror and The Los Angeles Times.
The latest high bid was rendered, somewhat ironically, by the Chandler family, which has a 20% interest in the company, following that Times Mirror sale to Tribune in 2000. There reportedly were two other offers, including one from Los Angeles billionaires Eli Broad and Ron Burkle, whose proposal would involve a recapitalization of the company, rather than an outright sale.
Under other terms included in the Chandlers' offer, the family would own 51% of the company, and the remaining 49% would go to two undisclosed private equity firms. That offer will expire on Jan. 31. The Broad-Burkle proposal would involve the two Southern Californians injecting $500 million in cash into the company and the arrangement of a related debt package. It would also result in the distribution of much of the company's value to shareholders in the form of a special $27-a share dividend. The shareholders then would retain a majority interest in the company, while Broad and Burkle would get about 30%, along with seats on the board.
The third offer apparently constituted a bid by a private equity firm for Tribune's 23 TV stations, and would leave the company holding its 11 daily newspapers, along with its ownership of the Chicago Cubs baseball team and its interests in the Food Network and the CareerBuilder online job search website.
So it appears that the company and its board are figuratively still in the soup. As is the case with other newspaper publishing companies, including McClatchy (NYSE:MNI) and Gannett (NYSE:GCI), circulation and advertising revenue numbers continue to slide, as readers obtain more and more of their news and information from the Internet. As a result, Tribune's share price, which began 2004 above $51, closed Friday at $30.52.
And since none of the offers received by the company last week appears to be a viable solution to its difficulties, I would expect Tribune's board to pass on the Chandlers' bid as inadequate, and the Broad-Burkle offer as being a touch too convoluted. That weakness, however, clearly is not as lethal as could be the approximately $6.5 billion in new debt with which it would saddle the company.
Goodness knows I'm not prone to cynicism, but a cynic might blame Tribune's mounting woes and inability to sell itself for a reasonable price on its Cubs ownership. After all, the hapless "Cubbies" haven't conquered a World Series since way back in 1908. But then I suppose anybody can have a bad century. Nevertheless, I wouldn't be surprised by yet another new round of pitches for the company from the world of private equity.
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Fool contributor David Lee Smith, a lifelong Red Sox fan, does not own shares in any of the companies mentioned. He welcomes your comments or questions.
