Tribune acknowledges bid for Sun

Potential local buyer says it is unclear whether the newspaper is for sale

November 03, 2006|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Reports that Tribune Co. is considering selling its assets piecemeal pleased the leader of a local group that wants to buy The Sun, but it was still unclear yesterday whether the Baltimore newspaper is for sale.

Theodore G. Venetoulis, a publisher and former Baltimore County executive who is leading the Baltimore Media Group in efforts to purchase The Sun, said a representative from Tribune telephoned yesterday to confirm the company had received the group's letter of interest. Venetoulis along with at least 15 business and civic leaders inquired last week about Tribune's interest in selling The Sun. "There is an indication there is a chance that local people might have an opportunity to negotiate for the local property," Venetoulis said yesterday. "I was encouraged by that."

But he said Tribune did not say if The Sun is one of the newspapers or television stations it would divest. Venetoulis added that the company did not indicate what its next step would be with the Baltimore group.

"They didn't say anything further on what they're doing," Venetoulis said.

Tribune spokesman Gary Weitman would not comment on recent reports indicating initial bids for the entire company were too low. The Los Angeles Times, Chicago Tribune and The Wall Street Journal cited anonymous sources saying that Chicago-based Tribune is now considering selling individual assets to address its falling stock price. Tribune shares closed yesterday down 36 cents to $32.26.

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.

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. Tribune also owns two-dozen television stations and the Chicago Cubs.

Some analysts have said Tribune has resisted selling off individual newspapers because of the tax burden. For capital-gains tax purposes, Tribune would have to use the cost basis, or original value of The Sun and former Times Mirror properties that was set when Times Mirror owned them, some analysts have said.

Tribune CEO Dennis J. Fitzsimons has said the company isn't interested in generating more tax liability after having to pay an unexpected $1 billion stemming from a transaction made by Times Mirror before Tribune acquired it six years ago.

But analyst Robert Willens said yesterday that Tribune could avoid a tax bill by creating tax-free spinoffs in which a buyer could purchase a controlling stake.

The process would entail creating a new company and transferring a newspaper to the company. Tribune would receive stock and cash in the new company with a higher value than the basis of the newspaper. The stock would be distributed to the shareholders and the cash to shareholders and debtors. Interested buyers would then buy a majority stake in the company, but less than 50 percent. The company could be taxed if the new owners have more than a 50 percent stake. In two years, the new owners could make a bid for the rest of the company.

"This is the model I would expect Tribune to follow," said Willens, managing director at Lehman Bros. "They can do this multiple times with different newspapers and television stations."

The pitfall to this type of transition would be that the burden would fall on the buyer, analysts said. "It would leave the buyer with a low tax basis that has economic consequences," said Richard Himelfarb, head of investment banking at Stiefel, Nicolaus & Co. "There is no magic bullet to solving the tax issue."

Venetoulis has said that the tax issue could become an obstacle to buying directly from Tribune since it could raise the price of the newspaper. The Baltimore Media Group said it would be open to other alternatives, including buying the newspaper from a private equity group if Tribune decided not to sell piecemeal.

Venetoulis said his group has been putting together a business plan and is ready to act if Tribune calls back. The group wants to study The Sun's financial books to provide a bid for the newspaper. A price tag for The Sun is uncertain because Tribune does not publicly separate the value of individual publications. One analyst said he conservatively estimated the newspaper's price at $600 million when taking into consideration its potential cashflow margins.

Venetoulis met yesterday with about a dozen representatives from six of The Sun's unions. Venetoulis said it was part of an effort to reach out to as many local groups as he can, including former publishers and advertisers.

"As part of our due diligence we think we need to meet with all the important constituents of the newspaper," he said.

Guild members said Venetoulis first approached them several weeks ago and has asked the unions to consider playing a part in financing the deal. Union members said they would explore the issue.

"We're not used to a potential employer reaching out to us, but we think it's a smart thing to do in returning the paper back to the community," said Cet Parks, administrative officer of the Washington-Baltimore Newspaper Guild.

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