Should a minority investor be able to impose its will on other shareholders in order to avoid paying taxes?


The question is at the heart of the messy battle between the founding family of the L.A. Times and media conglomerate Tribune Co. and their failed marriage. The Chandler family has accused the Chicago-based company of strategic failures that have caused Tribune's stock to fall 38 percent in the past three years.


Last week, Wall Street appeared to take the side of Tribune's Chief Executive Dennis FitzSimons, who moved ahead with a $2 billion stock buyback plan that was opposed by the Chandler family trusts.


Several Wall Street analysts have characterized the dispute between FitzSimons and the Chandlers as a controversy over who will assume the tax liability for two partnerships created in 2000, when Times Mirror Co. was sold to Tribune for $8.3 billion.


"The disagreement is not so much about strategy as it is about economics and tax risk," FitzSimons told analysts last week.


At issue is the valuation of assets held in two investment partnerships, known as TMCT I and TMCT II, that are worth an estimated $3.5 billion and hold 51 million shares of preferred and common stock. The holdings include Los Angeles real estate, Tribune stock and other marketable securities.


When Times Mirror set up the partnerships in the late 1990s, the valuation of the real estate assets was high, allowing the Chandlers to get a larger stake, proportionally, than Tribune. Years later, the partnerships are being valued again only this time the Chandlers want the value to be set artificially low to avoid paying capital gains taxes.


Yet, members of the Chandler family have not mentioned the tax issue in their discussion of Tribune.


William Stinehart Jr., one of three Chandler family members who hold Tribune board seats, has urged the company to take "prompt and meaningful strategic action" through tax-free asset sales.


Instead, Tribune bought back 45 million shares, or roughly 15 percent of outstanding shares, at $32.50 each. The stock buyback increased the Chandler trusts holdings to 14 percent, making them Tribune's largest shareholder.


Failed synergy
Robert Torray, president of Bethesda, Md.-based Torray LLC, which owns 1.6 million shares of Tribune, and also has stakes in Gannett Co. and McClatchy Co., said he thinks Tribune shares currently are "undervalued," because Wall Street has turned bearish on the newspaper industry.


"The fact that there have not proven to be great synergies between TV and the newspapers is easy to say in hindsight," he said. "Obviously there are people who must think that the parts are worth a lot more than the whole."


He said the Chandler trusts, which benefit 170 family members, refused to take part in the stock buyback because they would have to pay capital gains taxes on any sale of stock.


Analysts said the Chandler trusts are pushing for a tax-free spin-off of Tribune's 24 television stations, of which 16 are affiliates of the new CW network, a partnership between CBS and Warner Bros. The CW network is expected to perform well in its debut this fall because it combines the highest-rated UPN and WB shows; it also stands to benefit from changes to the Nielsen ratings system.


Analysts said Tribune is digging in its heels on any issue related to tax liabilities because it has been stung in the past.


Tribune was hit with a potentially massive $1 billion tax bill from the IRS related to the sale of two Times Mirror publishing businesses in 1998. The deals were structured by the Chandler family's financial guru, Tom Unterman, a former executive vice president and chief financial officer at Times Mirror who is a founder of Rustic Canyon Partners, a venture capital firm in Santa Monica. A spokesman for Unterman did not return calls seeking comment.


Unterman currently is handling the negotiations with Tribune about how to dissolve the two partnerships to help the Chandlers avoid a hefty tax bill.

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