A lot of ink has been spilled about the vanishing of stockholder value when Time Warner merged with AOL - but exactly the same thing appears to have happened in the Tribune's purchase of the LA Times, according to the Wall Street Journal:
Extra! Are Tribune's Parts Extra?
Media Giant Could Face PressureTo Divest Itself of Some Holdings;Sell the Cubs? Keep the Networks?
By JOSEPH T. HALLINAN March 30, 2006
It is just days away from the start of a new baseball season, and Tribune Co. finds itself in a pickle: Should it sell the Chicago Cubs, its game-losing but money-making team? Or keep the Cubs and toss out something else....
Tribune's two primary businesses -- newspapers and TV stations -- are concentrated in big-city markets that have taken a pounding from competitors. Its TV stations, such as KTLA in Los Angeles, have lost viewers, and its newspapers, like the Los Angeles Times and Chicago Tribune, have lost readers and advertising...
Tribune's price/earnings ratio for this year is 14. That compares with a slightly richer multiple of 19 for the Dow Jones U.S. media-stocks index.
Tribune's dilemma comes at a precarious time for media companies. Earlier this month, the board of Knight Ridder, based in San Jose, Calif., agreed to sell the company to McClatchy Co. of Sacramento, Calif., under pressure from Knight Ridder's biggest investor, Private Capital Management LP. The Private Capital money-management firm, run by Bruce Sherman, is a unit of Legg Mason Inc.
Talk on Wall Street is that Tribune could soon face the same pressure. But Mr. FitzSimons says there are important differences between Tribune and Knight Ridder, including the ownership of big blocks of Tribune stock by presumably loyal insiders. The Robert R. McCormick Tribune Foundation, of which Mr. FitzSimons is chairman, holds 14%; and the Chandler Trusts hold 12%.
The Chandler Trusts acquired their stake in 2000, when Tribune bought Times Mirror Co., which was controlled by the Chandler family. The trusts exchanged their Times Mirror common stock for 36.3 million shares of Tribune common stock and got three seats on Tribune's 12-member board.
That merger, which occurred at the peak of the Internet-stock bubble, looks increasingly costly. Revenue has barely budged over the past five years and billions in market value have evaporated. Tribune paid $8.3 billion for Times Mirror in 2000, including the assumption of debt. Today, that is the market value of both companies combined.
So... 100% of the market value of the entire LA Times empire seems to have... vanished... since it was bought by the Tribune empire.
But enough about the past - what about the future?
In the newspaper business, which accounts for nearly three-fourths of Tribune's revenue, fourth-quarter advertising trends were worse than many analysts had expected, and 2006 appears to be off to a slow start, Deutsche Bank analyst Paul Ginocchio said in a March 16 note to investors. Deutsche Bank has a financial relationship with Tribune.
The future isn't much brighter. For the monthly period ending Feb. 26, Tribune's publishing revenue fell 2.4% over year-ago levels, to $314 million. Lehman Brothers Holdings Inc. analyst Craig Huber predicts Tribune's 2006 newspaper ad revenue will drop 2.7%, versus an industry average of 1.5%. Mr. Huber has an "underweight," or "sell," recommendation on Tribune's shares. Lehman has a financial relationship with the company.
So if you are wondering why the LA Times Business Section is now running 'get rich quick ' ads (see my previous post) - wonder no longer.