The Tribune Publishing spinoff and the power of the deal
$350 million debt with a valuation of $528 million, new company gets assurances from analysts that all will be well
If you have ever sat in meetings where a company considers an acquisition, or where a company contemplates a start-up, there is a phenomenon where the longer the discussions, the more the group wants to go ahead with the deal. I don’t know if there is a name for this, but I have experienced on several occasions – and when I was in the M&A business I counted on this in order to get a deal closed.
When looking at the new Tribune Publishing company, spinoff of the newspaper division from The Tribune Company, one gets a sense of this. The company will begin trading public tomorrow as TPUB on the New York Stock Exchange and will have to either make enough profits to pay off its $350 million in debt, or else begin divesting properties. The third alternative, the one publicly promoted, is that the investment from shareholders will be enough to carry it through, and even to make acquisitions itself. We’ll see.
But the optimism sounds a lot like that expressed in those meetings. At first management is shocked to discover that the parent company wants a one-time cash dividend to Tribune shareholders that will lead to the company starting life with debt (like just about everyone who graduates from college in the U.S.). But then they start working the numbers and things start to look up. It is amazing what you can do with forecasts, if you want to.
Then look at the portfolio, it is tremendously impressive: the Los Angeles Times, the Chicago Tribune, The Baltimore Sun Media Group, the Orlando Sentinel… want newspaper professional wouldn’t want to own such properties.
But for years what we heard was that for newspaper companies to succeed they needed to diversify. Much lobbying went in to getting the Feds to allow newspapers to buy broadcast properties where they also published newspapers. But now, the companies that own both print and broadcast want to spin off those newspapers. The broadcast wing is even taking Tribune Digital Ventures with it. Thanks a lot, buddies.
My guess is that there is a lot of optimism now, built up from days of meetings where the momentum of the deal built up – and those analysts and consultants all have been saying the right thing (they are paid to do that). But tomorrow, when the market opens, things will get real in a hurry.
My only advice, if it were asked, and it hasn’t been, would be to not think of Tribune Publishing as a new newspaper company but as a new media company. That is a simple thought, but even companies like the NYT can’t seem to quit chopping up its newspaper content into smaller and smaller bits, rather than thinking completely outside of what they might publish in the newspaper. When the Tribune Company started launching stand-alone digital publishing products it quickly pulled back the effort when they didn’t immediately lead to huge new revenue gains. They kind of behavior has to stop or else they will never innovate.
So good luck Tribune Publishing, you’re on your own now. Let’s see if you have any tricks up your sleeve, the rest of the industry is watching.