Business NotesTo Cut Taxes, Tribune Is to Split Into Broadcasting and Publishing Units
By Christine Haughney and David Carr, The New York Times
- Jul. 11, 2013
The Tribune Company’s decision to divide itself into separate broadcast and publishing companies may help avoid a big tax bill, but the split does not address the bigger problem facing newspaper executives: buyers just do not want to spend on print.
Months after Tribune announced it was exploring opportunities for its newspapers, including The Los Angeles Times and The Chicago Tribune, the company instead said on Wednesday that it would spin them off into a separate entity called the Tribune Publishing Company. In doing so, Tribune followed the example of Time Warner and News Corporation, which also recently announced spinoffs of their publishing businesses, even though print properties are the backbone of their companies.
“These companies were built on print. These guys are walking away from decades-long legacies. This is a big moment,” said Alan D. Mutter, a newspaper consultant who writes the blog Reflections of a Newsosaur. “It’s like everybody is saying, ‘We’re out.’ ”
By spinning off the newspapers instead of selling them, Tribune avoids the tax consequences of a sale in the near term while still allowing the company, now led by Peter Liguori, a longtime broadcasting executive, to focus its efforts on television, including 19 local stations that it acquired for $2.7 billion at the beginning of the month.
In making the announcement, Mr. Liguori said that “the separation is designed to allow each company to maximize its flexibility and competitiveness in a rapidly changing media environment.”
The spinoff of the newspapers leaves Tribune as largely a broadcasting company, which will include 42 local television stations and interests in the Food Network,Web sites like Classified Ventures and CareerBuilder and its real estate holdings, including the Tribune Tower in Chicago.
The new publishing company, which will have its own board and leadership, will include the Los Angeles and Chicago papers along with The Baltimore Sun, The Sun Sentinel in Florida, The Orlando Sentinel, The Hartford Courant and The Morning Call in Pennsylvania. The newspapers’ operational tie-ins with Tribune’s digital sites, a valuable part of the enterprise, will remain intact after the split.
The publishing side of Tribune actually had higher revenue than the broadcasting side in 2012 — $2 billion compared with $1.14 billion. But according to Ken Doctor, a newspaper analyst, publishing revenue at Tribune has dropped 51 percent from 2005 and 2011, mirroring the halving of revenue in the rest of the industry. The newspapers have had deep editorial cuts and a loss of luster after a debt-laden purchase by Sam Zell in 2007. In February, Tribune announced that it had hired Evercore Partners and JPMorgan Chase to look into the sale of its newspapers. Several bidders expressed interest, including Charles and David Koch, the conservative billionaires; Aaron Kushner, the owner of The Orange County Register; and a group led by Eli Broad, the Los Angeles billionaire. But the efforts to sell have proceeded slowly, and the financial deal books that generally precede a sale have yet to go out.
The spinoff does not preclude a quick sale of the newspapers, but because the necessary filings will take months to prepare and be followed by putting together a new board and leadership for the publishing enterprise, Tribune’s decision could push any sale further down the road.
Robert Willens, a longtime tax analyst who runs the firm Robert Willens L.L.C., said that Tribune could avoid roughly $250 million in taxes on the sale of its newspapers, which have been valued at roughly $623 million, by creating a separate company. He added that for the deal to pass muster with the Internal Revenue Service, Tribune just has to show that it has not had discussions over price with potential buyers for two years before the creation of the new company.
“People do spinoffs all the time for the purpose of avoiding taxes,” said Mr. Willens. “That’s the beauty of a spinoff. It permanently avoids the tax that would be payable on a more straightforward or conventional disposal of the business.”
The company, he noted, is already grappling with a $190 million tax bill, plus 20 percent penalty, on its sale of the Long Island newspaper Newsday to Cablevision in 2008. In its most recent earnings report, Tribune Company said that it also might have to pay an extra $225 million in taxes after the I.R.S. finishes auditing the company’s 2009 tax return over a sale of the Chicago Cubs baseball team.
Despite the immediate interest from bidders, Tribune faces a tough market for newspapers, especially large regional dailies that have been hit hard by changes in advertiser and consumer behavior. In October, The Tampa Tribune sold for a scant $9.5 million; Philadelphia’s newspapers sold for $55 million in April 2012 after fetching $515 million in 2006.
Some investors are so concerned about print that they will not buy any companies with publishing stakes, according to Reed Phillips, a managing partner for DeSilva & Phillips, a media banking firm. “Shareholders aren’t rewarding companies for being diversified anymore,” he said. “Print media, there’s a real negative connotation.”
He said investors wanted to see companies that were exclusively focused on print and were trying to show how they would make a profitable transition to digital. “They’re going to have to be transformed,” said Mr. Phillips about these print companies. “Then investors may get re-excited.”
John Morton, an independent newspaper analyst, expects that the new company will make it easier to sell the papers. It also means the new broadcasting company can assume the tax liabilities lingering from its sales of Newsday and the Chicago Cubs, rather than pass them on to the newspaper company.
The split, like News Corporation’s, is expected to take months and is subject to some regulatory approvals. Once the new publishing company is formed, it must operate for at least a year before selling assets, or the tax liabilities will revert to the original owner, said an executive involved in the deal who was not authorized to speak publicly about operational matter.
Those who have been kicking the tires on the company’s newspapers may be in for a long wait. Mr. Kushner, the owner of The Orange County Register, said that the latest announcement did not change his interest. “I don’t lose sleep about how long it’s going to take for them to spin off the newspapers or not,” he said. “I don’t think it has any particular bearing on the ultimate disposition of the newspapers.”http://www.nytimes.com/2013/07/11/business/media/tribune-co-to-split-in-two.html?ref=media&_r=0