Monday, August 28, 2006

NYT Article on Crumbling And Sale of Knight-Ridder Applies To Tribune Co.

A lengthy article in the New York Times Sunday business section about the sale of the Knight-Ridder newspapers would seem to apply, at least in two important respects, to what could pertain to the prospects for a sale and breakup of the Tribune Co.

First, the Times reports, profit margins at the Knight-Ridder papers had slipped from 20% to 16.4%, and the stock price had gone way down, thus putting pressure on P. Anthony Ridder to make a sale. This is consistent with what has been happening to Tribune, where revenue is flat, profit margins are down and the stock price hovers at around the $31 level, far below the $52 it was just a little more than two years ago.

Second, at Knight Ridder, there was a dissident stockholder, Bruce S. Sherman of Private Capital Management, who held about 19% of Knight-Ridder stock, was dissatisfied with what he was getting out of it, and began pressing for a sale, along with Wall St. analysts who are always ready to shred a company, if they see the least advantage to themselves and their clients.

At Tribune, the Chandler family interests hold about 16% of the stock, and along with investor Nelson Peltz, with 1.2%, have also been pressing for a sale. Chandler family advisor Tom Unterman declared months ago that September might be a key time for such a sale, since certain Chandler family trusts dissolve at that time, and the tax hit on the Chandlers of a sale would then be less.

Another factor in the situation at Knight-Ridder, dealt with extensively in the New York Times article, is that P. Anthony Ridder, head of the company, decided it would be fruitless to fight the dissidents, and he bowed to the idea of a sale.

No one can yet tell whether this applies to Tribune Co. or not, because we don't know definitively the temper of Dennis FitzSimons, the Tribune CEO, and the Chicago businessmen who constitute the majority of his board.

FitzSimons so far has said he is stubbornly resisting the idea of a breakup of Tribune, but this position could change, if the stock buyback he undertook against the wished of the Chandler family representatives, is not successful in raising the stock price. We just, at this point, don't know how tough and determined FitzSimons is.

At Knight-Ridder, there had been considerable cost-cutting and layoffs. The conclusion of the article in the Times by Katherine Seelye is that this was unsuccessful in easing the difficulties of Knight Ridder.

This also may find a parallel in the Tribune Co.'s situation. Since becoming CEO, FitzSimons has wildly pursued cost-cutting, but the result thus far has not been a cure for the stock price problems, and, like at Knight-Ridder, it has certainly not enhanced the quality of Tribune Co. papers, most of which have seen a sharp circulation decline and outspoken reader dissatisfaction.

The NYT article quotes James M. Naughtonl, former executive editor of Knight-Ridder's Philadelphia Inquirer, as saying, "The real story of the decline and fall of Knight Ridder is not Bruce Sherman. It's the notion that you can continue whittling and paring and reducing and degrading the quality of your product and not pay any price. Tony (Ridder's) legacy is that he destroyed a great company."

That could well be FitzSimon's legacy at the Tribune as well. But, under local owners, the L.A. Times could easily prosper. They might care far more for California and its readers.


Anonymous Anonymous said...

Thanks for the incisive insights on the situation.

8/30/2006 5:05 AM  

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