Four months ago, when Tribune Co. was trying to figure out how to unwind complex partnerships with an unhappy major stockholder, CEO Dennis J. FitzSimons left open many options - except generating more tax liability.
Taxes became a sore spot with FitzSimons after Tribune was hit with an unexpected $1 billion tax bill stemming from a transaction made by Times Mirror Co. before Tribune acquired it six years ago. And taxes now stand as a major obstacle facing local business and civic people, including the newly formed Baltimore Media Group, who have expressed interest in buying several Tribune newspapers.
If the assets of The Sun or other former Times Mirror properties were sold piecemeal, Tribune for capital-gains tax purposes would have to use the cost basis, or original value of the properties, that was set when Times Mirror owned them, analysts said. That wouldn't be true if the company was sold as a whole.
"The sales are complicated by the fact that the original purchase of Times Mirror left Tribune with a very low tax basis," said Barry L. Lucas, senior vice president of Gabelli & Co. Inc. in New York. "You have to pay the piper, so to speak, on the sales if you sell them individually."
Theodore G. Venetoulis, the former Baltimore County executive who is leading the group of local business and civic leaders in an effort to buy The Sun , said he knows the chances of an individual sale are slim for that and other reasons.
"We're going in knowing it's a long shot," said Venetoulis, owner of a publishing company and who lost a Democratic primary bid for governor in 1978.
At least three private equity investment firms were expected to submit informal bids for Tribune Co. by late last evening, the deadline for such expressions of interest, sources close to the deal told Newsday, a Tribune newspaper. Firms planning to make such initial bids by midnight included Madison Dearborn Partners of Chicago, Washington-based Carlyle Group, and Boston-based Bain Capital LLC, the sources said. Madison Dearborn's initial offer would be made in conjunction with two other buyout firms - Providence Equity Partners and Apollo Management - and Carlyle and Bain would submit solo bids, the sources said.
The Los Angeles Times reported last night that Texas Pacific Group of Fort Worth and Thomas H. Lee Partners of Boston, which aligned with three other firms in the Knight Ridder offer, planned to be a duo in an offer for Tribune.
Executives of the private equity firms declined comment. Gary Weitman, a spokesman for Chicago-based Tribune, also declined comment.
Venetoulis said it may be more likely to acquire The Sun if Tribune sells to another buyer first: There would be a strong possibility of asset sales because the tax consequences would disappear.
"From that point of view that would be OK," Venetoulis said. "Whoever makes that huge of an acquisition will sell off some of the assets to pay some of the debt and investors."
The Sun and its then-companion paper, The Evening Sun, were valued at about $391 million in 1986, when Times Mirror bought the papers' owner, the A.S. Abell Co., for $600 million and then sold two television stations included in the deal.
The Baltimore Sun Co.'s value today is unclear, as Tribune doesn't break down the earnings of individual assets. But Lucas conservatively estimates The Sun is worth at least $600 million when taking into account its potential cash-flow margins.
It's no secret that the Chandler family, which as Tribune's largest shareholder has nearly 37 million shares and three of its 11 board seats through several trusts, is adverse to taxes. The family, which was the controlling shareholder in Times Mirror, went so far as to form two complex partnerships in the 1990s that allowed it to diversify its Times Mirror assets tax-free. Tribune moved last month to restructure those partnerships.
At least five of the company's 11 newspapers have drawn individual interest from outsiders: The Sun, The Hartford Courant, The Morning Call of Allentown, Pa., the Los Angeles Times and Newsday. All were Times Mirror properties. MediaNews Group chief executive William Dean Singleton reportedly has been interested in the Allentown and Hartford papers; local buyers have expressed interest in the Times and Newsday as well as the Courant.
Venetoulis said yesterday that he received a dozen more calls from people interested in joining the 15 to 20 business and civic leaders who he said are interested in participating in an offer. The group includes Abell Foundation President Robert C. Embry Jr. and longtime civic leader Walter Sondheim.