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Printing money

$8 bil deal gooses Times Mirror stock

NEW YORK — Times Mirror stock, which has been in the doldrums for months, soared nearly 80% Monday following the announcement that the Tribune Co. would acquire Times Mirror in a deal worth about $8 billion — the biggest newspaper merger in U.S. history.

While Times Mirror closed at $85.63, Tribune shareholders protested, driving the stock down by 17%, due to anticipated earnings dilution and concerns that one old media firm was buying more of the same.

But Wall Street mostly lauded the deal as a highly strategic combination that will give the combined company national reach — something most newspaper publishers lack — and the accompanying clout with advertisers, along with a massive Internet presence.

Newspaper and TV station group Tribune “is going from a regional media company to national, coast-to-coast, from Los Angeles to Chicago to New York and Hartford,” said Ed Atorino of Wasserstein Perella.

The $8 billion pricetag includes about $1.6 billion in Times Mirror debt.

The hike isn’t surprising, since the two-part deal calls for Tribune to launch a tender offer for 28 million Times Mirror shares (about 48% of the company) for an impressive $95 in cash. Tribune will then exchange 2.5 of its own shares (worth about $75 at Tribune’s current market price of $30) for each of the remaining outstanding shares of Times Mirror.

Despite the super premium, the price is a fair one, most observers agreed, as Times Mirror stock was significantly undervalued. The purchase price comes in at about 10.5 times Time Mirror’s estimated year 2000 cash flow — well below multiples paid for TV stations, cable systems or other media assets of late.

The two companies own 11 daily newspapers between them, including Tribune’s vaunted Chicago Tribune and Times Mirror’s Los Angeles Times, the Hartford Courant, the Baltimore Sun and Newsday.

Combine that with Tribune’s 22 TV stations, four radio stations and other media holdings, and the company will have undisputed strongholds in the three top American media markets — Los Angeles, New York and Chicago. Sports are also part of the mix, as Tribune owns the Chicago Cubs baseball team.

“We think we’re creating the premiere multimedia company in America,” Tribune prexy John W. Madigan said in a media briefing. “We now have the platform to expand our local interactive businesses into one with a national presence.”

The combined company will have $7 billion in revenue and $2 billion in cash flow.

Set for Web play

The consolidation of these two print titans comes at a time when newspapers are briskly moving onto the Web, a trend Tribune is now in a position to spearhead. A company release trumpeted the fact that the combined online divisions of the daily papers and other media outlets receive 3.4 million monthly visitors and are expected to have $55 million in year 2000 revenues, putting “the combined company in the top-20 ranking for news/information/entertainment interactive services.”

Tribune also expects to see a rise in national advertising revenues. As ad accounts, particularly national retailers, seek “mass media coverage on a national basis,” said Madigan, “they want to make as few stops as they can.”

One potential hurdle to the merger is the FCC’s cross-ownership rule prohibiting dual ownership of a newspaper and TV station in one city. Among the Tribune’s holdings are KTLA Los Angeles, WPIX New York and a 25% share of the WB network. But FCC policy grants newly formed newspaper/TV combinations exemption from the ban until their next license renewal. License agreements for Tribune TV holdings are not up for renewal until 2006.

Newspaper/TV combos

Cross-ownership, and the promotional opportunities it provides, are among the chief advantages of the merger, Madigan said, and Tribune executives expect the current ban to fall sometime soon. “If you look at the current media world,” Tribune general counsel Crane Kenney added, “a combination of a single TV station and a single newspaper in one market pales in comparison.”

The acquisition comes as the L.A. Times newsroom is still smarting from a scandal involving an advertising arrangement between the paper and the Staples Center sports arena, the subject of an L.A. Times Sunday magazine special edition.

The Staples Center brouhaha arose after several years of tension as Times Mirror chairman-CEO Mark Willes blurred the lines between advertising and editorial content in ways that many in the newspaper biz considered dangerous.

Willes departing

But Willes, who won’t join the new company, is also credited with shedding nonstrategic assets and tuning up the company’s financial performance. However, the negative media attention surrounding Staples and the ad/newsroom mix didn’t help the stock and embarrassed Times Mirror’s longtime controlling shareholders, the Chandler family.

Shares of newspaper stocks are “down in double digits across the board since the beginning of the year,” Bob Broadwater of the investment firm Veronis Suhler said. That gave Tribune a chance, and the Chicago company jumped right in. Wall Streeters don’t discount the possibility of another bidder entering the mix as well, however, such as USA Today’s giant owner, Gannett.

And as one Wall Streeter noted, high-flying Yahoo! “could snap up both of these companies in a heartbeat.”

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