TRIBUNE OPTIONS INCLUDE STATION SELL-OFF

CHICAGO (AP) — Tribune Co. announced late last night that it is restructuring two complex partnerships with the Chandler family, its largest single shareholder, clearing the way for the struggling media company to pursue new initiatives by year’s end.

Following a much-anticipated meeting of its board of directors, the newspaper and TV station owner also said the board named a special committee of seven directors to oversee strategic actions that management expects to take by the end of 2006.

Tribune did not say what those actions might be. But the short timeframe suggests the company, whose revenue continues to drop amid newspaper circulation declines, will move quickly beyond the plan it outlined in May calling for a combination of select asset sales, a $2 billion stock buyback and further cost cuts.

Possible options include everything from selling its broadcast division or other assets to taking the company private.

Named to the special board committee were directors Enrique Hernandez Jr., Betsy Holden, Robert Morrison, lead independent director William Osborn, J. Christopher Reyes, Dudley Taft and Miles White.

The partnerships with the Chandlers, the former owner of Tribune’s Los Angeles Times, had been widely expected to be dissolved following negotiations between the company and the Chandler Trusts.

Instead, the Chandlers will retain 95% interest in the partnerships and will increase their holdings of Tribune common stock to approximately 48.7 million shares from approximately 36.9 million, Tribune said in an evening statement.

The partnerships contain some $3.5 billion in assets and have hampered Tribune’s ability to make transactions because of major tax consequences.

”The restructuring of these partnerships frees the company to move quickly to pursue strategic alternatives to further enhance shareholder value,” said Dennis FitzSimons, Tribune’s chairman and CEO.

In an e-mail to employees late Thursday, FitzSimons said the restructuring simplifies the company’s capital structure by eliminating all preferred stock and has no impact on Tribune’s earnings. He added: ”We’re making solid progress on many fronts, and your efforts are appreciated.”

The company said it expects to record a one-time gain of approximately $45 million as a result of the transaction.

Under the terms of the restructuring, Tribune will receive distributions of all of its preferred stock—which currently is owned by the partnerships—and approximately 39.5 million shares of the 51.3 million Tribune common stock held by the partnerships.

Tribune also will receive the right to acquire the real estate owned by the partnerships in January 2008 for $175 million. The partnerships currently own real estate used by the Los Angeles Times, Newsday, Baltimore Sun and Hartford Courant newspapers, and various other investments.

A rift between the two sides surfaced last spring when the Chandlers, who hold three board seats, criticized the buyback strategy and called for the company’s breakup. In evidence those differences have been patched up, Warren Williams, chairman of the Chandler Trusts, said Thursday night that the trusts ”will now work collaboratively with management and the board to build value for all shareholders.”

The two partnerships were created in 1997 and 1999 by the Chandler Trusts and Times Mirror Co., which Tribune bought from the Chandlers in 2000.

They enabled the Chandlers to diversify their Times Mirror holdings through a tax-free swap of family stock for company assets, but only preserved the tax benefits if they stayed intact for seven years—a period that expired this month.

Anticipating a settlement on the partnership impasse, investors earlier pushed up Tribune shares $1.36, or 4%, to $32.05 on the New York Stock Exchange.

”The odds in my mind keep going up that there’s going to be a big breakup,” said Jerry Paul, CEO of Quixote Capital Management, a Colorado-based hedge fund. ”It’s the kind of thing that’s going to evolve over the next six to 12 months.”

The three-pronged strategy FitzSimons unveiled May 30 has lifted the company’s stock about 15%, including Thursday’s rise. Since he took over the top job in January 2003, with the stock at $45.46, it has declined about 30%.

But the Tribune CEO, while encountering resistance by Los Angeles Times executives to the latest round of proposed editorial cuts, still appears to have the support of large shareholders.

”We have a tremendous amount of confidence in the board, and we believe the board will make the right decision to enhance shareholder value,” said John Miller, portfolio manager with Ariel Capital Management LLC. Ariel owns about 6 percent of Tribune shares, making it one of the company’s largest shareholders.

Whatever strategy Tribune adopts, experts don’t see it as likely to include a sale of the Los Angeles Times—at least not any time soon.

Tribune has a sticky personnel issue to resolve following the show of resistance this month by Times Publisher Jeffrey Johnson and Editor Dean Baquet, who refused to implement the corporate parent’s latest proposed editorial cuts. The Times already has eliminated more than 200 positions over the last five years, and other Tribune papers are watching closely to see how the standoff is resolved.

But major shareholders and industry experts would be surprised if Tribune disposed of its largest asset. Despite a weakened advertising market that has cut into the Times’ revenues and a circulation decline, the newspaper is estimated to produce some $250 million in annual earnings before interest, taxes, depreciation and amortization.

”I think it’s highly unlikely they’d ever sell the Los Angeles Times,” said independent newspaper industry analyst John Morton. ”Owning the Times fits with their long-term strategy of owning both newspaper and broadcast interests in the same market. That’s basically still their long-range strategy, even if it hasn’t worked jolly well so far.”

FitzSimons seemed to signal his commitment to continued ownership this week, saying in a letter to 20 Los Angeles community leaders who had urged the company to consider selling the newspaper rather than make cuts that ”the Times is, and under Tribune ownership will continue to be, a truly great newspaper.”

Following a meeting in Chicago between Johnson and Scott Smith, president of Tribune Publishing, Johnson sent an e-mail to his staff Wednesday which seemed to suggest the tension might be easing. In the note, Johnson emphasized cooperation between the newspaper and its parent and said he would work on a budget plan.

The Tribune’s latest demands include keeping expenses flat for 2007, a goal that would involve cutting about $3 million from the paper’s editorial budget, according to a Times executive who requested anonymity because he was not in a position to disclose the information publicly.

An unspecified number of job cuts is also being asked for as part of a larger examination of how large the paper’s news force needs to be, the executive said.

AP Business Writers Seth Sutel in New York and Gary Gentile in Los Angeles contributed to this report.