By Lynne Marek | May 19, 2014
Tribune Co. didn't have much luck last year trying to sell its newspaper group, so the company has a new buyer in mind: you. Shares of spinoff Tribune Publishing Co. are expected to start trading around midyear.
But buyer beware. Though stock prices of smaller newspaper owners have jumped this year, publishing revenue and income at Tribune have been dropping. What's more (or, in this case, less), its parent company is keeping the more valuable broadcast and real estate assets for itself and loading up the spinoff with debt.
“Publishing assets these days are a drag on the company's financial results—that is the reason Tribune is spinning that off,” says Mayuresh Kelkar, an analyst at Chicago-based Spin-Off Advisors LLC who analyzed the Tribune breakup.
For investors with a high tolerance for risk or a hankering to be a press baron, however, Tribune Publishing could be just the thing. When Tribune's private-equity and hedge-fund owners spin off the newspaper group, Tribune Publishing will become the second-largest publicly traded newspaper company in the U.S.
The stock, which will trade on the New York Stock Exchange, likely will attract another class of investors: speculators banking on Tribune Publishing CEO Jack Griffin (at right) auctioning off the newspapers, either one at a time or in a block.
This will be the first time that Tribune shares trade on a public exchange since December 2007, when real estate tycoon Sam Zell's leveraged $8.3 billion buyout of the Chicago-based parent company was completed.
Tribune's newspaper group, including the Chicago Tribune, Los Angeles Times and Baltimore Sun, remains profitable, but the print industry has been in decline for a decade, with readers and advertisers migrating to online alternatives and sapping away revenue as they leave. While newspapers have developed their own websites and mobile apps, they've generally been losing the battle for eyeballs despite years of experimentation with digital subscriptions and alternative advertising options.
Tribune had publishing operating revenue of $1.89 billion last year, down 54 percent from $4.13 billion in 2004. Meanwhile, its 2013 operating profit of $234.3 million is less than one-third of the $726.2 million it earned in 2004. While the company has been aggressively cutting costs, including $100 million last year, it's still carrying legacy print costs and a headcount of some 7,000, including an estimated 750 at the Tribune, Chicago's biggest daily.
Grappling with the same challenges is the largest publicly traded newspaper company in the U.S., New York-based News Corp., an international publisher with 2013 revenue of $8.89 billion that was spun off from its broadcast parent last year. New York Times Co. ranks third, with 2013 sales of $1.58 billion.
Still, Tribune Publishing has unique troubles. As a part of the spinoff, it must turn over its real estate to its broadcast sibling, forcing the publishing company to pay rent to its former parent. It's also losing its ownership stake in Classified Ventures LLC, ending its income flow from online classified ad sites Cars.com and Apartments.com. And it's taking on $325 million of new debt to pay a special $275 million dividend to Tribune.
Even so, individuals and companies have popped up here and there, saying they'd be interested in acquiring the Los Angeles Times or Chicago Tribune post-spinoff.
Shares of Tribune Publishing will be peeled off the parent company's stock, which closed at $78.90 on May 16 in trading on an over-the-counter basis. The stock will become available to outsiders as current investors unload their holdings to pocket gains. Those “pink sheet” shares climbed over the past year as Tribune CEO Peter Liguori trumpeted his plans to create original TV programs for WGN America that he hopes will pump up fees cable distributors pay Tribune.
For big believers in the future of U.S. newspapers, an investment in Tribune Publishing would be a pure-play wager—eight daily brands from coast to coast with a combined Sunday print circulation of 2.4 million.
Share prices nearly doubled this year for smaller U.S. newspaper peers, including McClatchy Co. of Sacramento, California, which owns 29 small and midsized papers, and Dallas-based A.H. Belo Corp., which owns the Dallas Morning News, and other papers. Both benefited from payoffs they'll receive from selling their stakes in Cars.com and Apartments.com, and because they're considered acquisition targets in a consolidating industry. Their results have been improving, too.
“We think there's a lot of value to local content,” says Eric Kuby, chief investment officer at Belo shareholder North Star Investment Management in Chicago. “Digital is growing nicely.”
Mr. Kuby might have an appetite for Tribune Publishing shares, too. It all depends on that new stock price, he says.
View the article on chicagobusiness.com: Should you buy Tribune Publishing stock?
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