Tribune's Overhaul Plan Wins Plaudits

Vendor Bobby Wolfe displays copies of the Los Angeles Times at his Hollywood newstand Thursday Sept. 21, 2006 in Los Angeles. The publisher of the Los Angeles Times, who has resisted job cuts at the newspaper, wrote staff that he has met with a Tribune Co. executive in advance of a board meeting Thursday at which Tribune directors are expected to discuss the fate of the company's 11 newspapers and 26 television stations. (AP Photo/Nick Ut) (Nick Ut - AP)

CHICAGO -- Tribune Co.'s decision to radically overhaul itself by year's end pleased its largest shareholders and Wall Street Friday, helping send the media company's stock to its best two-day performance in four years.

Directors of the embattled newspaper and TV station owner said they are reviewing options that include a sale, breakup or buyout.

That amounts to an acknowledgment by the parent of the Chicago Tribune, Los Angeles Times and the Chicago Cubs that a stock buyback strategy it implemented in May isn't paying off fast enough and more action is needed to satisfy frustrated shareholders after a three-year stock slide.

After refusing previously to consider breaking up the company or selling prize assets, Chairman and CEO Dennis FitzSimons said in the wake of Thursday's five-hour board meeting that all options are on the table.

Investors welcomed the turnabout, pushing Tribune's stock up sharply for a second straight day. Shares rose $1.94, or 6.1 percent, to close at $33.99 on the New York Stock Exchange for a two-day gain of 10.9 percent _ the largest gain since Oct. 10-11, 2002.

But Standard & Poor's and Fitch Ratings downgraded Tribune's credit to the speculative-grade or "junk" category. S&P said the push for new transactions suggests Tribune won't be focusing on reducing its huge debt, which totaled $4.9 billion as of July.

If no buyer emerges for the whole company, as analysts expect, Tribune is expected to look at the company on a piece-by-piece approach and could also sell or spin off its broadcast holdings. Only a single buyer, McClatchy Co., surfaced last year when Knight Ridder Inc. put itself up for sale, and McClatchy is unlikely to take on another mega-deal so soon.

Analysts said the company can reap billions of dollars and succeed in regaining the share value it has lost in recent years by selling its premier assets in pieces, with few if any thought to be untouchable.

Morningstar's James Walden said the announcement looks to be "the beginning of the end of a very tumultuous period" for the company, with likely scenarios including a sale of broadcasting assets or sale of the entire company to management or private-equity investors.

"While no outcome is certain, we anticipate that some meaningful transaction will occur," he wrote in a note to investors. "We've long held that Tribune is significantly undervalued, and any of these scenarios could unlock tremendous value for shareholders."

Tribune shares, which traded as high as $53 in February 2004, bottomed out at $27.04 in April, reflecting not just Tribune's problems but the industrywide decline in circulation and advertising revenue as newspapers lose readers and business to the Internet.

Dave Novosel of the Gimme Credit research firm said management obviously felt pressure from the failure of its previous strategy to generate a stock-price surge. Besides a sale or spinoff of the broadcast operations, he sees Tribune reversing course on its refusal to put its Chicago baseball team up for sale, too.