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Analyst: Potential Tribune Moves Unlikely to Raise Share Value
By Jennifer Saba
Published: September 27, 2006 11:10 AM ET
NEW YORK Despite the Tribune Company's announcement last week that it is "exploring strategic alternatives," it's unlikely any potential move will provide an upside to shareholders, according to a report released by Merrill Lynch this morning.
Analyst Lauren Rich Fine models several different paths Tribune could take ultimately coming to this conclusion: "We have not been able to uncover substantial value in any scenario."
For starters, if the Tribune board decides to put the whole company up for sale it's doubtful that buyers will step forward given the company's size and unresolved cross ownership issues. Taking the Knight Ridder sale under consideration where only one strategic player and one private equity group came forward doesn't bode well.
Merrill Lynch thinks theoretically, Tribune could fetch about $50 per share based on a multiple of 10 times 2007 estimated EBITDA for its newspaper assets and 12 times for its TV stations. "However, realistically, we do not think this scenario is likely at all owing to a lack of likely buyers."
The research firm doesn't think private equity has "much to offer" since there are no obvious candidates for new management.
Merrill Lynch estimates Tribune's newspaper properties generate margins of 23.2% (2006 EBITDA), which are only slightly below industry averages of 24% to 25%. (Incidentally, margins for the Los Angeles Times are estimated at 21%)
For all the hubbub going on at the Los Angeles Times, Tribune could get dinged for selling it off (or other individual papers) given the company's low tax basis. This could explain why "Tribune management seems to be reluctant to sell the Los Angeles Times despite reported interest from local billionaires."
"Out of all the value scenarios, a spin-off of Tribune's TV operations seems the most promising, if a case can be made that Tribune can achieve the high end of pure-play TV comparables' valuation," wrote Fine. Standing in the way, the note points out are taxes and obvious buyers.
Jennifer Saba (jsaba@editorandpublisher.com) is associate editor at E&P.
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