Commentary

Alden's Offer For Remaining Tribune Shares Is Too Low

Hedge fund Alden Global Capital last month offered to buy the publisher of newspapers including the Chicago Tribune and The New York Daily Newsin a deal that undervalues the company. The transaction would make Tribune Publishing a private company with a valuation of $520.6 million.
Alden already is Tribune's biggest shareholder, with its ownership of 32% of shares, and three out of seven board sets. The hedge fund seeks to buy the remaining interest for $14.25 a share, which is about 12% more than its price before the offer was disclosed in a public filing.
Tribune likely has about $180 million in cash on its balance sheet after selling its interest in the BestReviews ecommerce site to TV station owner Nexstar Media Group for $160 million. Tribune will receive $96 million before transaction fees and an adjustment to working capital from the sale, adding to the $90 million in cash it had at the end of September.
Aside from its cash holdings, Tribune forecasts it will report adjusted earnings of $105 million to $113 million on revenue of $675 million to $690 million next year. Using a valuation multiple of 3.5 to 5 times earnings that's common for newspapers, Tribune's core business could be worth anywhere from about $368 million to $565 million.
Of course, any valuation needs to consider the company's enterprise value, which factors in its debt and cash holdings. Tribune's market cap recovered to a range of $420 million to $470 million in the past few months. Adding its reported debt of $283 million to that valuation and subtracting cash of $180 million suggests an enterprise value of $523 million to $573 million.
Data compiled by Seeking Alpha indicate that Tribune is valued at 6.7 times its enterprise value to its forward earnings before interest, taxes, depreciation and amortization (Ebitda), which is about 38% less than for its peers. While it's not clear whether that multiple includes the proceeds from the BestReviews sale, almost every other valuation metric indicates Tribune was undervalued.
News coverage of Alden's proposed deal, which requires board and shareholder approval, has cited the hedge fund's history of slashing costs at local newspapers to squeeze more profits out of them. Perhaps Alden can squeeze harder by combining parts of Tribune's operations with its other newspaper holdings. Alden owns 200 other publications through its MediaNews Group, whose titles include the Denver Post, St. Paul Pioneer Press and the San Jose Mercury News.
However, Tribune already has cut costs, including a 22% reduction in employee compensation costs in the third quarter from a year earlier. It also closed the physical newsrooms for six newspapers, including The New York Daily News, The Orlando Sentinel and The Hartford Courant. Tribune is a leaner company, and its stronger earnings demand a higher valuation.

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