Why Tribune Publishing can't sell the Los Angeles Times without blowing up the company
[caption id="attachment_373300" align="alignleft" width="206"] Commemorative banners hang on the building housing the Los Angeles Times, managed by the Tribune Publishing. File photo from 2006. (AP Photo/Reed Saxon)[/caption]The tom toms continue beating in Los Angeles where surrogates for philanthropist Eli Broad and deposed publisher Austin Beutner talk up the possible sale of the Los Angeles Times to a local ownership group.
That might be great, both for journalism and for the community. For several business reasons, however, I think Tribune Publishing is highly unlikely to part with the Times.
Since becoming CEO a year ago Jack Griffin has been talking about his five-point plan to turn around the company. One of those points has been to install new executives, then reorganize and expand national advertising.
If that's the goal, it would make no sense to shed the company's largest asset, which provides an estimated 40 percent of revenues.
"If you are trying to build a national presence, it behooves you to have the number two market in the country remain in your footprint," Barry L. Lucas, senior vice president of research at Gabelli & Company, the most experienced analyst following the company, told me in a phone interview Tuesday.
For that reason alone, I am not surprised that Griffin and his board flatly rejected Broad's recent overture to explore a sale.
The Los Angeles interests are also making noises about a lawsuit theorizing the board had a fiduciary duty to entertain a bid. But that's a pretty far-fetched scenario.
I'm not a lawyer so I asked Charles M. Elson, who is, and as director of the University of Delaware's John L. Weisberg Center, is a widely recognized and quoted expert on corporate governance issues.
Elson (a friend from his time in St. Petersburg in the late 1990s), was emphatic. "That's a classic matter for business judgement," he told me by phone. "If they (the board) say no, that's the end of it."
Unlikely does not mean impossible. If the L.A. group were to convince the six-member board or most of Tribune Publishing's big institutional shareholders to dump Griffin's plan (and presumably Griffin too), the sale talks would revive. (Griffin was fired in February 2011 after less than six months running the Time Inc. group at Time Warner.)
But Tribune Publishing's board affirmed the decision to dismiss Beutner and reject the Broad approach at a meeting September 3 -- essentially a vote of confidence in Griffin. At Time Warner, Griffin was running an important business unit but reported to CEO Jeffrey Bewkes (analogous to Beutner's relationship to Griffin). At Tribune Publishing he was the chosen to run the company as it spun off from Tribune Media's broadcast and digital businesses in August 2014.
Tribune Publishing, like most newspaper companies, has had a tough year financially with its shares losing roughly half their value during Griffin's time there. How long does Griffin have to demonstrate his plan is on track?
"It's still early days," analyst Lucas said. "He has only been there a year and has been putting his team in place....It's hard to fix a discrete time frame, but over the next 12 months -- heading into the 2017 budget -- you would like to see some hard evidence that it's working."
Griffin has not been available for interviews since firing Beutner after Labor Day. But he is on record -- at length -- about his strategies and how he is pursuing them. Besides the national sales initiative, other elements of the plan -- digital development, new revenue sources, acquisitions, even cost cutting -- turn on centralizing operations to a much greater degree than they had been already at Tribune.
In an earnings call with analysts in May, Griffin talked of reorganizing sales teams, building out a "custom content" (native advertising) effort, and training all sales representatives to offer both print and digital options. As a result, he said:
We had several notable wins in the first quarter, including (that), we won back Samsung, which returned to the LA Times with a six-page spread to promote its next-generation of the Galaxy smartphone. We created an integrated digital and print campaign for HSBC in Los Angeles in support of that financial company’s new deposits campaign. And we closed on significant digital-only campaigns for United Airlines across Chicago Tribune’s digital apps.
This summer Griffith brought in Denise Warren, who had overseen digital operations for the New York Times, to accelerate growth in that area where, he had earlier said, "we have a lot of catching up to do."
The acquisitions of the San Diego Union-Tribune in May and earlier, of a group of Chicago papers, also are premised on operational improvements driven from corporate headquarters.
Griffin also takes a centralized approach to cost controls. He hired consultants he had used during his successful tenure at Meredith Corp. and explained to analysts:
They are extremely effective at taking costs out of the core business on an annual basis, on a same-store basis. And a big part of that's due to the way they acquire outside goods and services. And that's what's going on here now for the very first time.
If you go back even a year ago, most of our business units were free to procure outside services on their own. And now it goes through a rigorous process of vetting and multiple bids and at least three different sets of eyes on a contract. We have about -- if you include paper and newsprint -- we have about $1 billion in outside spend. Presently, the procurement initiative is limited to about a third of that. And then over time, we will roll it out across the entire outside spend.
Suffice to say, that the L.A. Times is midstream in all these initiatives as are the rest of Tribune's papers.
But over the longer run, that's not necessarily the end of the story. Chicago and L.A. has not been a marriage made in heaven in the 15 years since Tribune acquired Times Mirror. L.A. has pushed for independence and special consideration to carry a larger editorial staff. Chicago has often found L.A. editors and publishers to be rebellious and insubordinate. Heads have rolled repeatedly -- typically as L.A. resisted or flatly refused to make cost cuts ordered by Chicago.
Bad marriages often end in divorce. This one could some day. But Tribune has consistently rejected earlier suitors for the Times (and several Baltimore groups seeking to buy the Sun as well).
The billionaire savior scenario fits in cities (Washington, Boston, Minneapolis, Philadelphia) where the paper is already on its own -- much less frequently when targeting one property in a chain.
So I'm betting against a sale for now -- though both the Los Angeles drama and the fortunes of Griffin's Tribune Publishing bear very close watching.