Anxious employees of the Los Angeles Times (of whom I used to be one)—already battered by bankruptcy and ownership changes that have gone from bad to worse and worser—learned this week that parent company Tribune Corp. is preparing to spin off its newspapers as a separate company rather than sell them.
Although it hasn’t been ruled out that rumored suitors like the ultra-conservative billionaire Koch brothers might still end up with one or more of Tribune’s eight newspapers, recent revelations of enormous tax liabilities left over from former owner Sam Zell’s wheeling and dealing have significantly reduced the value of those holdings. Billionaires Rupert Murdoch, Warren Buffett and Eli Broad have all been mentioned as possible interested parties in the newspapers, which include the Chicago Tribune and the Baltimore Sun.
Tribune announced a $2.7 billion deal last week to add 19 television stations to the 23 it already owns, taking on billions of dollars of new debt less than a year after emerging from a tortuous 5-year bankruptcy. The company would package them with radio, online and real estate holdings and keep the name Tribune Corporation, while the newspapers would be on their own as the Tribune Publishing Company.
Each of the two companies would have its own board of directors and management team but details of the plan may not be known for a year. The New York Times said the newspapers will continue operational tie-ins with Tribune’s digital sites.
Employees will be watching to see what happens to the Tribune Pension Plan—which has seen its assets decline from $1.7 billion on January 1, 2008, to $1.3 billion as of January 1, 2012—and the company’s retiree health benefits.
The Tribune split is similar to what Murdoch did last month at News Corp, and Time Warner did earlier in the year. Although new Tribune CEO Peter Liguori has expressed a desire to focus Tribune energies on its broadcast properties, observers believe the spinoff, rather than a sale, was driven by its tax situation.
Tax analyst Robert Willens told the New York Times that Tribune might save $250 million in taxes by spinning off the papers, valued at around $650 million, instead of selling them. But perhaps more importantly, the company might avoid an estimated $400 million+ tax liability for two slick deals swung by previous owner Zell when he sold the Chicago Cubs and Newsday utilizing an employee stock option plan (ESOP) to dodge the IRS. That ESOP facilitated Zell’s purchase of Tribune in 2007 with a relatively small personal investment and $8 billion+ in new debt.
Although newspapers have taken a relentless financial pummeling and experienced revenue declines over the past decade as readers and advertisers migrate to the web, the Los Angeles Times has been profitable every year. In fact, Tribune publishing revenues in 2012 ($2 billion) were higher than its broadcast properties ($1.1 billion).
The L.A. Times fired around 20 editorial employees last week, including half its graphics department, in the latest round of bloodlettings that track back nearly a decade.