Thursday, May 29, 2008

Another Tribune unit put on auction block

Tribune Co (NYSE:TXA) is attempting to sell off another business - this time, its Tribune Media Services unit, which distributes news and entertainment listings - to boost its short-term liquidity.

Tribune, the second-largest US newspaper publisher, has roughly $13bn of debt, with $1.85bn due in 2008 and 2009, following its deal last year to be bought by Sam Zell, the real estate investor.

The Chicago-based publisher agreed earlier this month to sell Newsday, the Long Island tabloid, to cable operator Cablevision to pay down some of its shorter-term obligations, but it still faces long-term challenges. Mr Zell had originally pledged not to sell any of the company's 11 newspapers, which include the Los Angeles Times and Chicago Tribune.

Tribune, which is also trying to sell the Chicago Cubs baseball team and Chicago's Wrigley Field stadium, has now added its media services business to the list of assets on the auction block, according to people familiar with the situation.

Tribune Media Services, which operates as a Tribune subsidiary, provides television and movie broadcast listings and distributes well-known syndicated columns and comic strips.

Tribune's advisers have distributed information on the unit, which generates about $25m in annual earnings before interest, taxes, depreciation and amortization and could be worth roughly $200m, to a range of potential buyers.

The sale could spark interest both from private equity investors and from corporate buyers within the media industry, such as cable operators or internet-based content providers, who may be interested in the unit's content provision, people familiar with the process said.

Tribune, however, remains in a significant financial quandary. If it continues with its efforts to sell off assets, analysts expect the company will be able to make payments on its debt through to the end of 2009.

However, each time it sells an asset at a valuation of less than nine times cash flow, its leverage ratio rises. Covenants on Tribune's loans require it to generate enough cash flow to cover one-ninth of the value of its guaranteed debt. The company has few, if any, assets in its portfolio that could win that high a price.

"Their leverage goes up every time they sell something," one person familiar with the situation said. "It just makes it all the more likely that the longer-dated maturities and equity will eventually be worth zero."

Tribune's sale of Newsday, for example, will generate roughly $650m to pay down debt. But the valuation awarded to Newsday in its disposal came in below the critical threshold at which it could prevent ratcheting up its leverage.

Tribune is now reviewing many of the assets underneath its corporate umbrella to determine whether they should be sold. The company, for example, owns a stake in both the popular Food Network and Comcast SportsNet.

The ailing company is getting little help, meanwhile, from the broader US economy. Three of its biggest newspapers are based in California and Florida, which have been particularly hard hit by the housing market's slump.

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