Tribune stands by bankruptcy plans, to spin off print division

September 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

When it emerged from the largest bankruptcy in the history of the US media industry, the Tribune Company said it would refocus on its more lucrative local television stations. On 10 July the company followed through with that plan, when it announced its intention to spin off its historic newspaper division.

The proposed spin-off would create a separate newspaper company, Tribune Publishing Co, and a separate television business called Tribune Co. The move to divide the Tribune business continues the recent trend of media companies spinning off their publishing divisions. In June, News Corp announced the break-up of its business, creating both a publishing company and an entertainment business. Equally, Time Warner Inc is currently going through the process of spinning off its Time Inc magazine operations.

The decision to spin off the company’s publishing division came just over a week after Tribune paid $2.73bn for Local TV Holdings LLC. The acquisition boosts Tribune’s TV offering to 42 local stations across 33 markets. Tribune Co will retain equity interests in Classified Ventures, Career Builder and the Food Network. The TV division will also take control of the group’s real estate assets, including Tribune Tower and the Freedom Centre.

After it emerged from a four-year bankruptcy in 2012, Tribune sent a clear signal that the company saw its future in television when it named Peter Liguori as its new chief executive officer. Mr Liguori is a former television executive at both Fox Broadcasting and Discovery Communications. He has also been credited with helping to grow the FX channel into a position of prominence.

Chicago based Tribune had been looking to divest its newspaper unit since February, when the company hired JP Morgan Chase & Co and Evercore Group LLC to explore exit options. Although Tribune had a number of discussions with some interested parties, those negotiations did not bear fruit. In bankruptcy filings from 2012 Tribune’s publishing division was valued at around $623m, $300m less than was estimated in January 2011.

The spin-off does not prevent Tribune from continuing to pursue the sale of some or all of the company’s publishing assets before the transaction is completed. At the time of writing, however, the company is not holding serious discussions with any potential buyers. Indeed, there are a number of factors which would make the outright acquisition of the publishing division unattractive. Chiefly, due to the company’s bankruptcy, Tribune’s newspaper assets have a very low basis, meaning that the taxes payable on an outright sale would be prohibitively high. Although a sell off is possible at any time, it is unlikely to happen before the spin-off has been completed, as any post spin-off sale would be tax free for Tribune’s shareholders.

According to financial statements released by the company in June, Tribune’s publishing division, which once made up the bulk of the company’s revenue, is still profitable. Publishing revenue declined less than 1 percent to $2.1bn in 2012, and accounted for nearly two-thirds of Tribune’s overall operating revenue. However, the publishing business only contributed around $88.9m or 20 percent of the company’s overall operating profit. Broadcasting revenues gained 4 percent in the same period to generate around $1.14bn in sales and $366m in operating profit. Furthermore, the publishing division’s advertising revenue has also been declining at an alarming rate. Q1 2013 saw a drop in revenues of 9 percent, after falling 14.5 percent between 2010 and 2012.

Tribune expects to spend the next nine to 12 months developing its plan to spin off of the publishing business. Once the deal has been completed, each division will have entirely separate management and directors. Shares in the new publishing firm will be distributed to investors.

Richard Summerfield