Wall Street asset-strips Tribune’s newspapers

A Ken Doctor scoop shows a planned spinoff endangering the papers' future

Tribune Company, which emerged from bankruptcy six months ago, announced last week that it will spin off its declining newspapers into a separate company, separating them from the company’s highly profitable broadcast business.

When Rupert Murdoch decided to do this with his publishing assets, wags in the Wall Street Journal newsroom called the future spinoff ShitCo because all the high-margin growth properties would go into 21st Century Fox.

But Murdoch set up the new stripped-down News Corp. quite well, giving it $2.6 billion of the old News Corp.’s cash and none of its debt.

Contrast that with what Tribune’s execs are doing to its newspapers, according to a troubling scoop from Ken Doctor: Spinning them off into Tribune Publishing Company and stripping them of their best assets, which will be kept in the broadcast-centric Tribune Company.

Doctor reported that Tribune will keep all the real estate owned by its newspapers for itself and will also keep its share of two lucrative online-classified sites, as well as Tribune Media Services. All these assets were owned by, created for, or associated with the company’s newspapers.

Tribune, in its split announcement, took all the reliably profitable parts of the enterprise. It left for the spun-off newspaper company the assets that will lose another five to 10 percent of their print advertising this year, and will likely continue to show overall revenue decline.

It’s not clear yet what kind of cash and debt Tribune will set up the new newspaper company with, but it surely won’t be the kind of in-it-for-the-long-haul balance sheet that Murdoch has given the new News Corp.

The Wall Street folks who control Tribune now are essentially liquidating the newspapers. They’re taking declining businesses and effectively selling off their remaining assets that are stable or growing.

By keeping the real estate, for instance, Tribune is aiming to squeeze every last dollar out of its assets. If it were to spin off the newspapers with their buildings, the market wouldn’t fully value either asset. That’s because real estate investors don’t tend to be newspaper investors, and vice versa. Investors are willing to pay higher multiples (of earnings, sales, etc.) for pure-play investments.

Some real estate guy would love to get hold of Tribune Tower and turn it into luxury condos, while some other crazed soul might love to buy the Chicago Tribune itself. They’re unlikely to be the same person.

The problem is that by separating the newspapers from some of their best assets, Tribune is further imperiling their futures.

The Tribune, say, will now have to pay big bucks for rent and that’s money that will come out of its meager operating profit. It also won’t be able to sell its buildings to use the proceeds to invest in itself or to simply survive.

The worst indignity is not giving the papers their stakes in the online-classified sites and in the Tribune Media Services syndication service. Those sites delivered profits that at least made up a fraction of what was lost to Craigslist and eBay and the like. Now the papers will not only face those giants, they’ll compete with the sites they themselves once owned.

At least they’re not selling the printing presses for scrap. Yet.

It looks like the future of the Tribune papers will depend even more on the largesse of trophy buyers in individual markets. We can only hope they’re at least somewhat civic-minded.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,