Updated from 7:12 a.m. EST
announced Monday that it has agreed to acquire
for cash and stock valued at about $6.5 billion in addition to assumption of about $1.6 billion in debt.
The deal would bring together the
Los Angeles Times
, plus TV and radio stations, in a marriage of high-profile U.S. newspapers. It also furthers Tribune's ambitions on the Internet front.
The move would end over a century of control of Times Mirror by the Chandler family of Los Angeles. The paper has been in family hands since Harrison Gray Otis bought the one-year-old
Los Angeles Daily Times
newspaper in 1882. In 1894, his daughter Marian wed Harry Chandler, who eventually became the newspaper's second publisher.
"The newspaper industry has been consolidating but not on this scale," said analyst Rudolf Hokanson of
CIBC World Markets
. "Usually acquisitions have been made in smaller lumps." He rates Tribune a buy and his firm has done no underwriting for the company. He does not cover Times Mirror.
Tribune fell 6 3/8, or 17.1%, to close at 30 13/16 Monday, while Times Mirror gained 37 11/16, or 78.6%, to close at 85 5/8. Analysts said Tribune's stock fell because of perception that it was paying too much for Times Mirror, as well as worries over its earnings being diluted in the near term.
Under the terms of the cash and stock deal, Tribune will make a cash tender offer of $95 a share for up to 28 million Times Mirror shares, or 48% of shares outstanding. That represented a premium of 98% over Times Mirror's closing price of 47 15/16 Friday. After the tender, Tribune and Times Mirror will merge, with Tribune converting each remaining Times Mirror share for 2.5 shares of Tribune stock. Based on Monday's closing prices, 2.5 shares of Tribune stock were valued at $77.03.
If fewer than 28 million Times Mirror shares are purchased in the tender offer, Tribune may purchase Times Mirror shares in the market, permitting Times Mirror shareholders to convert the balance of the 28 million shares into cash.
Despite the seemingly hefty premiums, "given historical ranges, the price looks reasonable," Hokanson said. "But a lot of these stocks are trading at the low end of their ranges." He calculated that from 1994 to 1998 Times Mirror traded on an average year-end multiple of 10.6 times, and the price offered by Tribune works out to 10.5 times.
After the merger, Tribune will have 11 daily newspapers, 22 TV stations and four radio stations. The combined company will also build on Tribune's Chicago base with both TV stations and newspapers in the local markets of New York, Los Angeles and Hartford, Conn. The acquisitions fit well with Tribune's Internet unit,
, which relies heavily on local content.
"The Tribune wants to have depth in local markets so they can create e-commerce opportunities. Long term they want 50% of revenue to come from advertising and 50% from e-commerce," Hokanson commented. "If they can expand their footprint in major local markets, then they have tremendous leverage to maximize that strategy."
Federal Communications Commission
may have to approve the deal, as companies are not allowed to own both a television station and a newspaper in the same market without a waiver.
The deal is expected to add to cash earnings per share in 2001, with cash EPS defined as diluted earnings per share before amortization of goodwill and intangibles. It will add to reported earnings per share within three years and increase the company's long-term EPS growth rate by 1 percentage point to 2 percentage points.