No Slick Way Out For Tribune

At what point does it become easier for Tribune Co. (TRB) to give up and just unload the Los Angeles Times? Given that the Tribune is getting a battering for its management--more on that later--and that potential buyers exist, I asked one analyst, well, why not? The droll, BlackBerry'd reply: "Sets a bad precedent, as they could then lose every paper."

The Times is one of America's great newspapers and also one of its oddest. Flush with ads and pride in generous times, the paper has made two aborted lunges in the past decade toward national expansion and East Coast editions. Changing times chasten ambitions, but the Times remains a paper for which no familiar model fits. Is it a purely local paper? The 2000 Census tallied more than 9.5 million people within sprawling Los Angeles County alone, so the least ambitious definition of the Times encompasses a population greater than any of the 50 states but eight. In practical terms, this means standard guesstimates of, say, how many reporters are needed at a paper of its circulation may not apply. In philosophical terms, it means the Times is the only major American daily to have ping-ponged among national, local, and regional identities without comfortably landing on any.

IN THE BEST OF TIMES, TRIBUNE likely would not bother much with such concerns. These are not the best of times. The board is mulling asset sales. The Times' revenues and profits are slipping. The situation is so delicate that I should mention editor Dean Baquet and publisher Jeff Johnson, who balked at corporate demands for more cutbacks, remained in their jobs at press time. (It's inexact to equate head count with quality, since 10 sharp reporters do more than 30 lousy ones, but the Times has cut more than 20% of 1,200 newsroom staffers since Tribune bought parent Times Mirror in 2000. At what point does it max out on cuts?) Those who slammed Knight Ridder for prizing profit over quality now whack Tribune. As might be expected in a town awash in cash and ego, local billionaires such as David Geffen have expressed interest in buying the paper. (Tribune CEO Dennis FitzSimons has said the Times is not for sale, but it's no longer his decision.) A new owner would thrill Times partisans and relieve Tribune types weary of being fitted with black hats. A shame, then, that such an outcome is so unlikely.

Life for Tribune would be easier without it. Four newspaper companies just lowered third-quarter forecasts, among them The New York Times Co. (NYT), in part because of weak revenues at big-city papers. "Metro dailies are losing revenues much faster than any other class of print," says a top newspaper executive. "I am not sure you can chase that revenue decline with expense cuts fast enough to maintain profitability." Meanwhile, Baquet and Johnson's efforts to hold the line are not appreciated on Wall Street. "You've got the socialists trying to run the place," cracks one analyst.

But I'm hard pressed to think of any socialist enterprise with 20% profit margins, which the Los Angeles Times notched in the past few years on revenues topping $1.1 billion. (This year is tougher, hence the standoff.) Its roughly $225 million in profits in 2005 was about 20% of Tribune's total. Standard multiples for newspaper deals, inasmuch as they still exist, suggest a sale price exceeding $2.6 billion, an eye-popping sum even for the David Geffens of the world. But set aside the price. Analysts say a Times sale would leave Tribune with a massive tax bill that could top 40% of proceeds. (Tribune and Times executives would not comment.)

That point resonates with Wall Street types, even if the Times' own struggle doesn't. Smart money says Tribune will divest its 26 TV stations and perhaps some smaller newspapers, borrow big, swallow hard, and go private. Which leaves Tribune and the Los Angeles Times in an unhappy marriage, one that shows no sign of reconciliation, reinvention, or end.

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By Jon Fine

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