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The list of potential suitors for the Tribune Co. is starting to read like a supermarket tabloid about celebrity couples.  The Tribune Co which owns a range of media and entertainment properties including the LA Times, Newsday, more than 20 TV stations, the Chicago Cubs, and sizeable investments in Food Network, Career Builder, Topix and others,  has had itself on the market since around September 2006 around which time S&P lowered the company’s credit status to “junk.”  

Since special committee was formed by the Board of Directors to oversee the process, rumors and reports have put Tribune in bed with virtually every private equity company from the Blackstone Group to the Carlyle Group.   Billionaire moguls have also been rumored on the dance card.  Last month the Financial Times reported Rupert Murdoch’s News Corp was interested in taking a substantial minority stake.  The Wall Street Journal separately reported investors Eli Broad and Ronald Burke had submitted a bid.  Now the Chicago Tribune is reporting that Chicago local, and real estate mogul, Sam Zell is trying to structure a deal.

Why is this deal so hard to get done?  The simple answer is some combination of three things – price, deal structure and board acceptance.  While there is unquestionable value in the wide range of Tribune Co’s properties, the challenge is unlocking it from the complicated web of properties, existing agreements, a rough balance sheet and well publicized shareholder rift.

As far back as July Tribune co was carrying upwards of $4.5b in debt.  Potential buyers will want to restructure some of that, or be certain, at the least their abilities to restructure the company aren’t hampered by creditors.  Additionally, there’s concern about future income.  The newspaper holdings in the portfolio are suffering from declining circulation and an ad market that has been weak for several years.  (While nationwide newspaper advertising was around $50b for 2006, growth was flat.).   

Complex partnership structures dating back to the $8b 2000 takeover of LA Times parent company Times Mirror also have presented obstacles needing to be worked out.  The partnerships were created to allow the largest Tribune shareholder, the Chandler Trust, to diversify holdings through a tax-free swap of family stock for company assets.  For those benefits to not be voided, the partnerships had to remain intact or be restructured.  In the event that assets caught in the partnerships were to be sold, or the partnerships broke up, the Tax bill would have been substantial.  A restructuring plan was approved in mid September.

Since being put on the block, the majority of offers seem to take one of two forms – minority investment or outright purchase.   One likely scenario includes Private Equity firms buying Tribune outright and taking it private where, once free from the burdens of SEC filings and public arm-chair-quarterbacking, the company (and its debt) can be restructured more easily.  There is substantial possibility that pieces would be spun off as independent entities.  It would make sense to put the print properties in one company and the more lucrative broadcast and sporting components in other.  (As the New Yankees and other sports teams have demonstrated, joint ownership of a popular sports team and Television property can be especially profitable.)   In a two-way split of Tribune, the broadcast piece, free of the costs from print, would have higher operating margins and could probably sustain a higher P/E if it were brought back to the public markets as a new company.   Tribune Co also has substantial real property holdings; the value of some of which is underscoring the legitimacy of rumors Sam Zell is seriously interested.

Another scenario has private bringing investors bringing new capital that can be used for share buyback and debt payment.  It’s less lucrative, and less likely, but this would be easier to structure and achieve than a total buyout.

Given the scale and complexity of any buyout, a deal is only going to happen when the stars align which is to say when the purchase price sought by the shareholders is low enough that a privatizing buyer sees enough upside for the risks they are taking and when the existing contractual/partnership issues are resolved such that both buyer and seller can be happy. 

Tribune Co’s probably going to be in the tabloids for a few more months before the dating ends and an engagement is announced. Eventually, somebody is going to sign the prenup.

Lists of Tribune Co Asset holdings can be found on Wikipedia here.