The venerable Chandler family, which owned the Los Angeles Times from 1884 until its sale to Tribune in 2000, is starting to think selling to a huge media conglomerate wasn’t such a good idea.
In a letter that shocked most of the financial and media community for its timing, if not its analysis, the family trust excoriated Tribune for its failed strategy of grouping newspaper and broadcasting assets (such as the LA Times and KTLA):
As you know, the basic strategic premise of the Tribune/Times Mirror merger was that the crossâ€“ownership of multiple premium major media properties in the nationâ€™s three largest media outlets would provide a platform to produce above-industry performance for both its newspaper and broadcast assets and for strong growth in interactive and other media opportunities. This strategy has failed and the regulatory change anticipated at the time of the merger to make legal the permanent cross-ownership of certain of key assets has not occurred. Over the past two years, Tribune has significantly underperformed industry averages and there is scant evidence to suggest the next two years will be any different. Clearly, it is time for prompt, comprehensive action.
In addition to the failure of its primary strategy, the company is confronted with a fundamental erosion in both of its core businesses and the consequences of failing to invest aggressively in growing
new businesses. In the face of these serious challenges, management has failed to generate a viable strategic response, allowing value to deteriorate and creating a need for decisive action.
â€¢ First, Tribune must find a way to separate the newspaper business from television broadcasting. By far the most expeditious and effective way to accomplish this is through a tax-free spin-off, which management and the Board have been considering â€“ without action â€“ for many months. Among other things, management should diligently explore the possibility of arranging for a major private equity firm to make a significant investment in the television company and act as its â€œsponsor.”
â€¢ Second, Tribune should begin promptly exploring other strategic alternatives, including breaking up and selling, or disposing in tax-free spin-offs, some or all of its newspaper properties, or alternatively, the possibility of an acquisition of Tribune as a whole at an attractive premium.
â€¢ Third, we call upon the Board to appoint a committee of independent directors as soon as possible to oversee a thorough review and evaluation of the management, business and strategic issues facing Tribune and to promptly execute alternatives to restore and enhance stockholder value.
Given the risk of continued deterioration in the companyâ€™s primary businesses, if a separation of the newspaper and broadcast businesses or other strategic steps relative to the newspaper business cannot be accomplished by the end of the year, then the possibility of an acquisition of Tribune as a whole should take priority.
The Chandlers own 12% of Tribune stock and control three company board seats, according to the LA Times, which means they could create heaps of trouble if they like. The letter was issued in response to a stock buyback the company proposed to pump its flagging stock. The Chandlers apparently aren’t interested.
If their changes aren’t addressed, the Chandlers threaten to gather other shareholders and try to overthrow company leadership:
If timely action is not taken, however, we intend to begin actively pursing possible changes in Tribuneâ€™s management and other transactions to enhance the value realized by all Tribune stockholders by engaging with other stockholders and other parties.
What will this all mean for the LA Times? It’s very unclear whether any sale or spin-off will mean an end to the cost-cutting and business slippages at the city’s biggest paper. But it’s surely heartening for its journalists to find out that the Chandlers think continued cost-cutting in newspaper operations isn’t the way to go:
Managementâ€™s operational response (yet another new round of cost-cutting) is subject to serious execution risk and offers little to spur revenue growth and invigorate the newspaper franchises. As is shown in detail below, management has been and is once again acquiescing to sub-par growth in return for short-term cash flow. Morale at many of the newspapers is already quite low and will be driven lower with a new round of cost cuts.
Tribune released a vague statement in response, mainly to point out that everybody else on the Tribune board disagrees with the Chandlers:
The actions suggested by the Chandler Trusts in today’s letter were considered by the board prior to its approval of the tender offer. After receiving recommendations from management and the board’s outside financial and legal advisors, all the directors except those representing the Chandler Trusts approved the tender offer as being in the best interest of all shareholders.”