OK I’m having trouble understand this. The Tribune Company which owns a lot of newspapers like the Chicago Tribune, the Los Angeles Times and Newsday as well as a number of TV stations like WPIX (NYC), WGN-TV (Chicago) and KTLA (LA).
In September I read that the Tribune was going to sell off some smaller TV stations to decrease debt load because, the Chandler family., the largest shareholder, was unhappy with the stock price.
Now this makes sense, sell some TV stations reduce debt load and the price of the stock goes up. Fine makes sense. (Maybe I’m wrong if so tell me)
Now I read that the Chandlers are still unhappy and the Tribune is considering selling itself to a new owner, but the offers have been (as quoted in Bloomberg) “disappointing.”
Now the Tribune says it is willing to sell it’s newspapers and TV stations seperately or even each newspaper or TV station seperately.
Now this confuses me. If the Chandlers want a higher price, if the Tribune sell itself how will that make the stock go up. Especially if they sell it off in pieces. Won’t that just result in the Chandler’s owning a piece of another company?
As an end note just for people who haven’t followed this. A large part of the reason this came up now is the Tribune owns KTLA and The* Los Angeles Times* and WPIX and Newsday. You can’t have a TV station and newspaper in the same market. Tribune got a temporary waiver for this but the TV station renewals are coming up in December of this year and the Tribune had hoped the FCC would relax the rules and allow them to own it by now. WGN-TV and the Chicago Tribune are allowed to exist because of a grandfather clause , but if they sold to a new owner they wouldn’t be able to.
Questions about whether group of assets are worth more individually or collectively are as old as business, and admit of no definitive answer.
In this case, the Tribune Corporation has chosen, over the last few decades, to aggregate a cluster of newspapers, radio stations, and TV stations (and a baseball team-- ) into a single economic entity. There are advantages to doing this–overhead can be reduced (accounting, taxes, management shared across similar operations), resources can be shared (same features running in multiple newspapers), bargaining power with customers (purchasers of advertising) can be increased.
There are also disadvantages–remote management leads to poor decision-making, and “synergies” anticipated across diverse activities often fail to materialize.
The Chandlers are unsatisifed with the Tribune Corporation share price. Assuming for the sake of argument that they’re correct, there are two possible problems–either the aggregation of assets makes sense, but Tribune Corporation has done a poor job of managing them, or the aggregation doesn’t make sense and the assets would be worth more if broken up and sold in pieces.
The only way to test these theories is to sound out potential buyers about buying pieces of the company or the company as a whole. There are a number of possible outcomes–if the company is sold piecemeal, the cash will accrue to the corporation, and will either increase shareholder value (and hence the share price) or be distributed to the shareholders as a dividend. If the entire corporation is bought out, the Chandlers will either remain as minority shareholders in the successor enterprise or sell their shares to the new owner for cash.
Yet another possibility is a “spin-off”, in which management breaks a company into pieces, and each shareholder gains a pro-rata share of each successor company. Management hopes that the market will value the pieces greater than it previously valued the whole. Spin-offs, however, are more common in industries that are young and growing than in industries (such as newspapers) that are in decline.
) into a single economic entity. There are advantages to doing this–overhead can be reduced (accounting, taxes, management shared across similar operations), resources can be shared (same features running in multiple newspapers), bargaining power with customers (purchasers of advertising) can be increased.