After The Chandler Letter, What Can Force A Sale of The L.A. Times?

After months of uncertainty, the position of the Chandler family in the Tribune crisis was made clear in a long letter yesterday filed with the Securities and Exchange Commission.

My favorite paragraph in this indictment of the inept regime of Tribune Co. CEO Dennis FitzSimons by Chandler family members who belong to his own Board of Directors read this way:

"Management's operational response (yet another new round of cost-cutting) is subject to serious execution risk and offers little to spur revenue growth and invigorate the newspaper franchises. As is shown in detail below, management has been and is once again acquiescing to sub-par growth in return for short-term cash flow. Morale at many of the newspapers is already quite low and will be driven lower with a new round of cost cuts."

Yet, crawling figuratively into his bunker, FitzSimon's short response yesterday promised more cost-cutting. FitzSimons seems determined to further reduce the quality of the L.A. Times and other former Times-Mirror newspapers in the pursuit of a business strategy. He wants to throw out the baby with the bathwater.

But this obstinate wrong-headedness may contain a hint as to the eventual outcome of the present drama.

Just like the Pharaoh in ancient Egypt, FitzSimons and the Chicago businessmen who form the majority of the Tribune Board of Directors, may ultimately decide to let the Jews (read in this case, the Los Angeles Times) go, because it is so much trouble. If they do, then it is only a case of negotiations to see on what terms. There are plenty of prospective buyers of the L.A. Times, and I'm sure the Chandler family tax concerns could be met.

In Phil Rosenthal's column this morning in the Chicago Tribune, there is indirect speculation along these lines.

For instance, Barry Lucas, senior vice president and analyst of Gabelli & Co., is quoted as saying of the Tribune Company's situation, "Two of your (old Times Mirror) properties -- excuse me -- have been the boat anchors around (Tribune's) neck here, the L.A. Times and Newsday. But again that doesn't change the fact that Tribune management owns them and something should have been done."

This points the way to a possible change in the FitzSimons position, dutifully echoed by the L.A. Times' Chicago-lining publisher, Jeff Johnson, that the Times will not be sold, because if the Tribune board majority concludes that the Times and Newsday, with their smaller profit margins, really have been "boat anchors around (Tribune's) neck," what better policy can they follow than to get rid of those newspapers by selling them? Sale of the Times would go a long way toward resolving Tribune's immediate debt problems. Entertainment mogul David Geffen, for example, has reportedly said he would be willing to pay as much as $3 billion for the Times.

Rosenthal also usefully quotes Fred Kalil, vice president of Kalil & Co., a radio and television brokerage firm, as saying, "The best case for (the Chandlers) is maybe round up some private equity players who potentially could act together and maybe make a hostile (takeover). That would be one way of seeing an outcome."

That is another route by which the Chandlers could force the breakup of the company that their letter says they want.

The situation of the Tribune Co. and FitzSimons is deteriorating, somewhat like MacBeth's position deteriorated in the famous Shakespeare play as powerful negative factors impacted upon him. Just this morning, Moody's downgraded the Tribune credit rating to junk status, and the Tribune stock price through market speculation rose to the uppermost $32.50 level that was envisioned in the foolish FitzSimons stock buyback plan that sparked the present crisis as surely as the convening of the States General in 1789, as a means of dealing with fiscal problems, initiated the French Revolution.

If indeed the stock price, which closed at $32.51 Thursday, was to go persistently above the limits of the buyback offer, then it seems likely there would have to be another Tribune Board of Directors meeting to consider whether to raise it, and in that event, the Chandler family position that the buyback offer entails Tribune Co. taking on too much debt, might prove a more powerful argument with other board members than so far they have been able to make. We have to assume that Chicago businessmen are not blind, just because they are Chicago businessmen.

In other words, under what I have no doubt is the skillful Chandler maneuvering being advised and possibly led by Tom Unterman, could lead to a consensus board decision to change position and put the Times, or maybe the whole company, up for sale.

In one comment this morning, Rem Rieder of the American Journalism Review called the Chandler letter "tacky." It will not be tacky if it forces a change of policy by the Tribune board majority. In that event, FitzSimons might fall on his sword by resigning and the way would be opened to a more glorious future, at least for the L.A. Times, a reversion to California ownership.

(Judging from the comments made on this blog, some of my readers are not too fond of the Chandler family and fear that a resale of the Times would lead to them coming back in control of the paper. But this is not threatened. If there is a resale of the Times, the paper will go to someone else, although the Chandlers conceivably could still hold a good share of the stock).