FitzSimons stands firm
Tribune CEO Dennis FitzSimons insisted at the Mid-Year Media Review conference in New York that a majority of the company's board of directors, including the independent directors, are firmly behind Tribune's plan to buy back up to 25% of its outstanding shares for around two billion bucks, despite opposition from the Chandler Trusts, Tribune's second-largest shareholder. He said the tender offer is on track, with closing set for June 26th. In his presentation, FitzSimons tried to explain how the TM/CT partnerships now jointly owned by the Chandlers and Tribune, following its acquisition of Times Mirror, play into the current dispute. He accused the Chandler Trusts of pressing for changes which would benefit them to the detriment of other shareholders and FitzSimons said Tribune is not going to take a tax hit to accommodate the Chandlers.
"These are two partnerships which were set up by the Chandlers and Times Mirror in 1997 and 1999, prior to the acquisition of Times Mirror by Tribune. Their purpose was to diversify the Chandler Trusts out of Times Mirror stock in a tax-efficient manner. Today they are owned by Tribune and the Chandler Trusts on approximately a 50-50 basis. TM/CT's combined assets include 51 million shares of Tribune common and preferred stock, plus fixed income, equity, real estate and venture capital investments. The total value is about 3.5 billion. At issue here are a couple of things. First, documented by recent media coverage, is the potential tax liability that the company could incur if these partnerships are restructured as the Chandler Trusts have requested. As you were aware, Tribune absorbed a one billion tax bill in September that was inherited along with the Times Mirror acquisition. That has reduced our market capitalization and certainly damaged our stock's performance vs. our peers. The company has no intention of assuming any additional tax liability," FitzSimons said. "The second issue, which has not received as much attention, is the valuation of the common and preferred stock in these partnerships. The leverage recapitalization has raised the value of the common stock, which accrues primarily to the company's benefit, and reduced the value of the preferred stock, which accrues primarily to the Chandler Trusts. At the time the board voted to authorize the tender offer, there remained a fundamental disagreement between Tribune and the Chandler Trusts as to the financial terms of a TM/CT restructuring. The gap in valuation between the company and the Chandler Trusts was material. Our unwillingness to delay the tender offer in order to accommodate the demands of the Chandler Trusts was based on the judgment that the tender offer benefited all shareholders - the Chandlers proposed restructuring of the TM/CTs primarily benefited the Chandler Trusts at the expense of other shareholders. So this disagreement is not so much about strategy as it is about economics and tax risk," FitzSimons told the annual gathering sponsored by the Newspaper Association of America.
