Tribune Company says spin-off of publishing still set for 2014, but many details remain missing
Company’s SEC filing filled with holes as it works out details of divestiture
The Tribune Company filed its plan for the spin-off of its newspapers properties with the SEC yesterday. The new company, Tribune Publishing, would be established sometime in the first half of next year, though many of the details are still unknown.
When word hit of the filing I read the reports in both the L.A. Times and Chicago Tribune, as well as the filing itself, but was left with more questions than answers. As someone involved in mergers and acquisitions, the spin-off still looks to me like a worst-case scenario game plan as the company still hopes someone will want to over pay for its newspaper titles.
But the SEC filing has little holes in it that might discourage a sale – or speed one up. For instance, there is the paragraph that says that the new entity will be paying the parent a cash dividend – how much is unknown as a space is left for the amount.
“Immediately prior to the distribution, we intend to pay a cash dividend to Tribune of approximately $____ million. We expect to fund such cash dividend with proceeds from debt financing that we anticipate arranging prior to the distribution. In connection with the distribution, we also expect to enter into a revolving credit or working capital facility to fund working capital and other liquidity requirements.”
The question most investors would usually ask is how much money the Tribune Company will give Tribune Publishing as a cushion so that the new entity can get off the ground. But instead, the new entity is being expected to pay the Tribune Company a dividend, and will have to go into debt to do it. This might make some sense of Tribune Publishing was pushing off a huge amount of debt onto the parent company, but this isn’t the case, so why the dividend, and why isn’t the amount known.
One reason might be that the company still hopes to find a buyer before spinning off the publishing division. That would explain the lack of a more specific date for the spinoff, and the lack of detail in the financial arrangements. On the other hand, if they are serious about the spinoff, it would make sense to go through the fourth quarter and see what the final P&Ls look like.
The Tribune Company owns newspapers in some pretty attractive market. But the company also has some complicated digital advertising agreements to work through that would lessen the advertising value of the properties. For instance, the Trib is party to the LLC agreement with CareerBuilder and if the Tribune Company were to cease owning 30 percent of its newspapers – and it would under the terms of this filing – then CareerBuilder could terminate the existing affiliation agreement. This can all be worked out, but the real issue is the $112 million the company earned last year through both CareerBuilder and Classified Ventures. How would a buyer view the loss or modification of this relationship?
Newspapers owned by the Tribune Company:
Chicago Tribune, LA Times, RedEye, Baltimore Sun, South Florida Sun-Sentinel, Orlando Sentinel, The Hartford Courant, The Morning Call, Daily Press, Hoy, El Sentinel, El Sentinel del Sur de la Florida, Burbank Leader, Daily Pilot, Glendale News-Press, Huntington Beach Independent, Valley Sun, Coastline Pilot, Pasadena Sun
Maybe a new owner wouldn’t care. After all, the most likely scenario for a sale has always been a buyer who wanted the papers, especially the LA Times for the same reasons Doug Manchester wanted the San Diego Union Tribune (and possibly the same reason Jeff Bezos wanted the WaPo). In this scenario a high profile paper bought without assuming much debt would be attractive, even if its revenue generating capabilities were somewhat diminished.
Both of the reports, from Robert Channick of the Chicago Tribune and Walter Hamilton of the LA Times, hint at what might be the idea behind an actual spin-off. Channick mentions that spinning off the properties before a sale could alleviate some of the capital tax gains it might occur, while Hamilton concentrates on the benefits of not having the albatross of publishing still around the necks of the Tribune Company.
The SEC filing doesn’t answer very many questions, but it does leave the definite impression that the company is desperate to dump the publishing side of the things. I’m just not sure they are making it very attractive for any potential buyers, or for investors who believe the new company will be a safe place to put their money.