The new company is planning to raise ~$350m of new debt prior to the spinoff and as part of the transaction, will pay a special dividend of ~$250m to its parent. While not an unusual move, Tribune’s proposal received a lot of negative attention from the press and even drew the ire of a senior California Democratic congressman, Henry Waxman. I wonder if all of the unwanted attention led the company to scale back its debt intentions. Ultimately, this is a classic separation of a slower growing, ‘headwinds’ facing business so it wouldn’t have been surprising if they wanted to be more aggressive on the debt side. The parent company, which is now known as Tribune Media, will retain all of the fast growing media assets along with the real estate and other business ventures. This is another burden for the publishing business because as we noted earlier, in addition to being forced to fund interest payments related to its special dividend, the company will have to start paying rent.
The Chicago Tribune recently had a piece highlighting some potential valuation estimates for the new company, including CRT Capital’s Lance Vitanza’s estimate of an $635m equity value (or $25 per share). Mr. Vitanza was not concerned about the balance sheet and believes ‘the company is well-positioned, with strong brands in attractive markets, an exciting digital strategy and significant cost-cutting opportunities.’ The company is currently trading on a When-Issued basis at around $23.50. Performing your own ‘relative valuation’ should be easy given the bevy of similar spinoffs and the well-defined space.
For additional information on the spinoff, check out the most recent Form 10 and all of our earlier coverage on the topic.
Disclosure: Author holds no position in any stock mentioned.