Is Selling Off Assets the Best Move for Tribune Media?

If investors are acting positively to the announcement of possible selling off of decently profitable assets, it means that they don’t think much of those assets’ future performance value and that they think it’s a good thing they’re being gotten rid of. Tribune’s spike higher then is the market’s way of saying that its media assets are degrading. Since the August 2014 spin-off of Tribune Publishing Co. (NYSE: TPUB), that is the direction that both stocks have been going as cord-cutting and print media degradation have taken their toll on both entities.

So what happens now? While an acquisition by a competitor like Twenty-First Century Fox Inc. (NASDAQ: FOXA) or Walt Disney Co (NYSE: DIS) is certainly possible from a financial perspective at least, it seems unlikely due to antitrust issues. Not that such government roadblocks couldn’t eventually be overcome through sweet-talk, favors or selling off more assets, the real issue is whether trying to overcome those  issues by appeasing regulators is really worth the time and effort for either Disney or Fox in the case of Tribune. It doesn’t look like it by the numbers, so it probably won’t happen.

The next possibility is that the company is taken private by a group of hedge funds. That doesn’t look likely either, as the largest single shareholder, Oaktree Capital Management, owns only 15% of the company. Such a deal would be too complicated as too many equity firms would be involved.
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Besides, Tribune’s balance sheet would be too much of a burden for anyone but a mega-cap to absorb. The company is leveraged 100% with full exposure to interest rate increases. According the Tribune’s 10-K, each quarter point rise in interest rates translates to a $6 million annual increase in debt service costs. Plus, the company’s pension fund is underfunded by a hefty $456 million as of December 31, 2015, so whoever would want to absorb the company will have a lot of retirement money to shell out.

These reasons combined are likely why Tribune is emphasizing the possibilities of further spin-offs, partnerships, programming alliances, buybacks and dividend increases. Something to stay the decline of its stock price temporarily but nothing more than that. In the end, it looks like the spin-off of Tribune Publishing in 2014 was just the first step in Tribune’s dissolution. From here on out, it looks like two steps forward, three steps back.