Final bids to buy Tribune Co. were submitted by two Los Angeles-based financial powers, but word on Wall Street is that the auction will yield no winners in terms of increasing shareholder value.

The Tribune board was scheduled to review the bids over the weekend, but experts anticipate further negotiations or a rejection of all offers. Even before the bid deadline last Wednesday, Wall Street analyst Lauren Fine of Merrill Lynch declared that "even if there is a sale, a big premium is unlikely."

The final proposals confirmed little upside for shareholders. The first bid came from the Chandler Trusts, which owned the Los Angeles Times before selling it to Tribune in 2000. The Chandlers offered to buy the entire company and then spin off the 23 TV stations into a separate company, which would also inherit the Chicago Cubs baseball team, cable TV's Food Network and the CareerBuilder Web site. The Chandlers would retain the company's 11 newspapers, including the Times.

Meanwhile, billionaire partners Ron Burkle and Eli Broad offered to keep the company together. According to the Times, their offer would pay shareholders a one-time dividend of $27 per share on a stock that trades for about $30. The partners would end up owning about one third of Tribune's shares, with the rest still trading publicly. The plan would load the company with debt.

Yet both bids fail to address the fundamental weakness in the newspaper business, according to Joel Fishman, a mergers and acquisition attorney in the Los Angeles office of Ropers Majeski Kohn & Bentley LLC. "At this juncture, I don't see any good outcome except dealing with the issues facing the industry," he said. "Ad revenues continue to decrease. For help-wanteds, department stores and cars the declines are tremendous. Newspapers are losing their audience, and whatever happens in this transaction will probably ignore that fact."

"As far as strategy is concerned, there is very little wiggle room," agreed Mark Edmiston, managing director of investment bank AdMedia Partners in New York. "Ad revenue will continue to decline since the consolidation of retail and the migration of classified to the Web are structural changes in the newspaper environment. This makes increasing ad revenue problematic so they will have to turn to increasing circulation revenue or cutting costs."

Merrill Lynch's Fine estimates the Times value between $2.13 billion and $2.35 billion. Tribune also owns local station KTLA-TV (Channel 5), which Fine values at $782 million.
Those numbers sound big, but in fact Tribune has picked a poor time to sell. Fine assumed buyers would pay six to eight times earnings for newspapers and eight to 10 times earnings for TV stations. According to a survey by AdMedia, publishing executives forecast newspaper multiples in 2007 will fall in the low to middle single digits. As recently as 2005, newspapers sold for 10 to 13 times earnings.

In a Securities and Exchange Commission filing, the Chandlers stated their deal offers a value of $31.70 per share. The Burkle-Broad option works out to about $34. Finally, Fine at Merrill Lynch figures the break-up value of Tribune's assets at $32.35 per share. But the shares already trade in the $30.50 range, giving investors little to cheer about.

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