This week one of America’s great media companies jumped nearly 10% in value. The Tribune Company – owner of the Chicago Tribune, Los Angeles Times, WGN superstation, the Chicago Cubs and other great assets – announced a significant stock buyback. After falling nearly 40% over the last year, the stock made jump up. Does this signal a good time to own this venerable company?
The Tribune Company announced that it was going to borrow a lot of money, and use the proceeds to buy back its stock. It will sell some assets, but not most of them. There is no plan for a significant restructuring. Nor a big change in the business. The company said its value is understated, so it is going to borrow money, crash its debt rating, and use the money to hopefully resurrect its moribund valuation.
Will this address the issues which has caused the 40% devaluation? Let’s see, large display advertising customers, such as auto and movie studios, have moved 20 to 40% of their newspaper advertising to Google and other on-line sources. Classified ad customers are finding good service at much lower rates at CraigsList.com and Autotrader.com. In entrenched markets like Baltimore, where the Tribune operates the Baltimore Sun, the well financed Examiner paper is entering the market stealing advertisers.
The Tribune’s actions are an example of Defend & Extend Management. Management knows that the low valuation makes them a target for corporate raiders. So they load up on debt in order to keep the outsiders from trying a takeover. Meanwhile, the company strategy is to change very little. And that is unfortunate, since the marketplace has significantly shifted since the Tribune became an industry leader. Such Defend & Extend tactics will not create value for investors, and shows a much greater probability of significantly weakening a company already under attack from "new media" Challengers.
What would be good to see would be more White Space at the Tribune. Rather than a disturbance, which may well lead to complacency, a real internal Disturbance demonstrating that the company recognizes serious change is needed. And White Space that is funded, and given permission to develop a new Success Formula for the company. Since we don’t see those things, it’s unlikely the company will sustain its recent valuation improvement.
