Fog shrouds would-be buyers of The Sun

November 29, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

There is no doubt that Baltimore capitalists could rustle up $517 million, which is what Lehman Brothers media analyst Craig Huber estimates it would take to buy the Baltimore Sun Co.

The question is whether enough of them want to, whether Tribune Co., which owns The Sun, would accept such an offer, and whether they would even get a chance to make one.

Two months after Chicago-based Tribune decided to auction itself off, the answer is still foggy, and it got murkier yesterday after the company pushed back its timetable for a resolution.

The best chance for a local buyout lies in a bumper-pool scenario in which somebody else buys Tribune and then, to pay off debt, dishes The Sun to Theodore Venetoulis and his secret partners.

Such a transaction requires luck, skill and deep pockets. So far it's unclear whether the Baltimore group possesses any of the three.

Venetoulis, a former Baltimore County executive and suburban newspaper publisher, says he has received tons of interest in financing a buyout of The Sun from local banks. His group has met with Bank of America, Wachovia, SunTrust and M&T, among others, he says.

Even so, we must take it on faith that they have the juice to do the deal. They'll need a down payment of at least $100 million, and none of their publicly disclosed investors can proffer that kind of jack.

Not Venetoulis, who basically says he's the group's face, not its wallet. Not the Greater Baltimore Committee's Walter Sondheim. And not the Abell Foundation's Robert Embry.

When former General Electric boss Jack Welch says he wants to buy The Boston Globe, you can believe there's a will, plus a way. A few years ago Forbes magazine pegged Welch's wealth at $680 million.

The Abell Foundation, capitalized by the family who sold The Sun to Times Mirror in the 1980s, owns something like $180 million in stocks and bonds.

But the foundation's board holds a duty to preserve the money for philanthropy and is not going to plough most of it back in the newspaper business.

No, the deal needs some as-yet unidentified sugar daddies. And maybe some mommies.

"We have the support and the tentative commitment from a substantial level of folks in town from whom we'll have the necessary equity," says Venetoulis.

Maybe there really are tycoons who want to buy The Sun. But Venetoulis won't say who they are. And "tentative commitment" is an oxymoron.

A big reason to be tentative is the financial attractiveness of the newspaper business versus other investments. Venetoulis doesn't exactly make it sound like the next Microsoft. "It's going to be a modest investment" in terms of potential profit, he says.

In a written report, Lehman Brothers' Huber estimates that 2006 revenue for The Sun and its affiliates will be $324 million, down $6 million from 2004.

Even so, the newspaper is still quite profitable. Next year Huber estimates the company will earn $57 million in profit before subtracting non-operating costs such as interest and depreciation.

I tried to interview Huber, but his assistant says Lehman lawyers have gagged the analyst from talking to journalists about Tribune. Perhaps one of the potential Tribune bidders has hired Lehman as an adviser, which would require extra discretion from sell-side analysts.

If so, that bidder is further along than the Baltimore group, which has retained neither investment banking expertise nor legal counsel, according to Venetoulis. The group's reasons make sense: Tribune hasn't let it look at The Sun's books.

Still, it demonstrates what a long shot this is. The Wall Street Journal reported that Tribune would entertain bids for pieces of the company, not just the whole caboodle. But apparently not pieces this small.

Billionaires Eli Broad and Ron Burkle, who want to buy the Los Angeles Times, Tribune's biggest paper, seem obliged to try to swallow the whole company to get the chunk they want. We know the Baltimore folks aren't in their league.

Still, a Broad/Burkle takeover or something similar might lead to local ownership for The Sun. A Tribune breakup to some degree seems inevitable. Probably nobody wants to keep the whole thing, even if they end up owning it temporarily. The most likely piece to be spun off or resold is the TV stations, but newspapers may be dealt out, too.

Analyst Huber foresees a leveraged buyout in which Tribune management borrows money to take the company private and then sells certain assets to pay down the mortgage. And because The Sun is not in a "core" Tribune market such as Los Angeles, Chicago or New York, he writes, it would probably be one of the properties to be sold.

The Baltimore group contacted all known Tribune tire kickers "to alert them that we are interested and that we have a pretty formidable group and that we would be interested in the acquisition of the Sunpapers," Venetoulis says.

OK, but formidable is as formidable does.

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