Spin-off: LAT awaits the unknown

For the 133-year-old Los Angeles Times and other print news publications adapting to the digital media age, the only thing that’s certain is an uncertain future.

That became clearer than ever when the Tribune Company announced last week that on Aug. 4 it will create a new corporation known as the Tribune Publishing Company to take over its eight newspapers, including the L.A. Times and Chicago Tribune. The announcement represents the culminating step in a process of restructuring, upheaval and staff cuts at the Tribune Co. and the Times that dates to 2000 — when the Tribune Co. first acquired Southern California’s iconic daily newspaper.

So what happens now?

“Once these assets are severed, you’re talking about a freestanding company which anyone can go out and buy,” said newspaper consultant and UC Berkeley Graduate School of Journalism lecturer Alan D. Mutter. “Potentially, some or all of the new company could be in play.”

Tribune Co.’s publishing operation generated $1.9 billion in revenue in 2013, still larger than the company’s broadcasting business, but a far cry from the $4.1 billion earned from publishing in 2005, according to financial statements

The deal, which is similar to other spin-offs engineered at Time Warner and Rupert Murdoch’s News Corp. in recent years, is intended to lift the Tribune Co.’s market value by shedding its burdensome publishing assets, while also avoiding the heavy federal taxes that accompany a full-fledged sale. Tribune Co. will retain the company’s lucrative broadcast and entertainment assets, as well as other properties.

Investors increasingly have shied away from traditional media outlets as the digital revolution builds steam and newspaper advertising revenues continue to plummet, but Tribune Co. officials have insisted that the new publishing company will be financially sound.

Tribune Co.’s publishing operation generated $1.9 billion in revenue in 2013, still larger than the company’s broadcasting business, but a far cry from the $4.1 billion earned from publishing in 2005, according to financial statements.

“(Tribune Publishing’s newspapers are) well-positioned for success, powered by award-winning journalism, great original content, innovative technologies, and a continuing commitment to serve the communities in which they are located,” Tribune Co. CEO Peter Liguori said in a memo last week, the Chicago Tribune reported.

But certain aspects of the deal have left some observers in shock.

Unlike Murdoch’s more generous News Corp. split, Tribune Co.’s plans call for the spin-off company to pay a $275 million cash dividend to the mothership immediately after separation, which will be funded by borrowing.

The Tribune Co. will also maintain ownership of its newspapers’ real estate following the deal, collecting rent for such famous edifices as the Tribune Tower in Chicago and the Times-Mirror building in Los Angeles.

That arrangement repeatedly drew the ire of Representative Henry Waxman, D-Beverly Hills, in recent months. Waxman has disputed Tribune Co.’s claim that the spin-off company — and Waxman’s local L.A. Times — will be financially viable after the deal if Tribune Co. forces such difficult terms of separation on the newspapers.

“The requirement that the newspaper unit go into debt to pay a cash dividend to the Tribune Company will undoubtedly enrich the Tribune Company, but it may do so at the expense of the financial health of the Los Angeles Times and the other papers in the newspaper unit, all of which are already facing financial strains,” Waxman said in a December letter to Liguori.

The Tribune Co. will also maintain ownership of its newspapers’ real estate following the deal, collecting rent for such famous edifices as the Tribune Tower in Chicago and the Times-Mirror building in Los Angeles. That’s a difficult pill for the new company to swallow, as real estate value often justified half of overall newspaper sale prices from 2009 to 2012, according to a report by media analyst Ken Doctor last summer.

In 2012, shortlists of potential buyers for the Times included former L.A. deputy mayor Austin Beutner and Orange County Register owner Aaron Kushner, among others.

A spokesperson for the Tribune Co. was not available to comment on the deal.

The Tribune Co. last attempted to unload its newspapers though outright sales in late 2012, when the company first emerged from four years of bankruptcy, but potential deals with Murdoch and others never came to fruition. Last July, the Tribune Co. announced it would spin-off its newspapers into Tribune Publishing.

Separated from the rest of the company, the spin-off could make Tribune Publishing and its individual newspapers once again attractive to media moguls on the hunt for new acquisitions, but any sales may be years in the future, rather than weeks or months, Mutter said. That’s because the true market value of Tribune Co.’s newspapers likely won’t become clear for some time after Tribune Publishing goes public.

“If the company’s revenues and profits deteriorate in the future as they have been, you might be able to buy this for a relative bargain,” he added.

Tweet from Rupert Murdoch:”Sorry can’t buy Trib group or LA Times .Cross-ownership laws from another age still in place.”

In 2012, shortlists of potential buyers for the Times included former L.A. deputy mayor Austin Beutner and Orange County Register owner Aaron Kushner, among others. Now, individual investors would be hard-pressed to mount an expensive bid for all eight Tribune newspapers, which are likely to stick together immediately following the spin-off, Mutter said.

Rumors circulated this month that Murdoch — whose News Corp. and 21st Century Fox are rife with cash — could once again be in the market for the Times or Tribune Publishing’s eight-newspaper package, but Murdoch denied the allegations when he took to Twitter last week.

“Sorry can’t buy Trib group or LA Times,” Murdoch wrote. “Cross-ownership laws from another age still in place.”

Murdoch was referring to Federal Communications Commission rules that prohibit media owners from controlling a newspaper and television station in the same city. Murdoch owns two TV stations in the Los Angeles Basin, but exceptions to the rule have been made in the past — including for the Tribune Co., which operates KTLA-TV Channel 5 in the city.

Tribune Co. first acquired the Times from the Chandler family in 2000, only to struggle and eventually sell to investor Sam Zell in a 2007 leveraged buyout. Zell’s entrance was ill-timed, as the U.S. economy collapsed months later, and deep cuts followed at all Tribune papers. In late 2008, Zell allowed Tribune Co. to slide into Chapter 11 bankruptcy.

“It was very clear from the very day that Tribune took over the Los Angeles Times that they weren’t interested in Los Angeles in the least,” said Leo Wolinsky, a former executive editor of the Times who departed before the bankruptcy. “In many ways, they found it off-putting. Right from day one, they cut their connections to the community.”

The paper limped through bankruptcy to renewed speculation of new ownership in 2012, only to see any potential deals fall through and the spin-off proposal announced in mid-2013.

The Times’ future prospects are anything but clear, but former Times publisher and new Tribune Publishing non-executive board chairman Eddy Hartenstein is unequivocally optimistic.

“…the plan put forth by Tribune Co. is sound, reasonable and will help protect and build a strong future for the Los Angeles Times and Tribune’s other newspapers for years to come,” Hartenstein told the Los Angeles Times.

For Wolinsky, however, any continued efforts to run the Times from a corporate office — far removed from daily goings-on in the Southern California community — will be largely doomed from the start.

“Newspapers need to be connected to their communities, and the problem with corporations is they become disconnected,” Wolinsky said. “They just become bloodless businesses.”