By Peg Brickley
Tribune Co. won court approval of its Chapter 11 plan after a
long and contentious bankruptcy proceeding, clearing the way to
action before the Federal Communications Commission that will be
anything but easy for the publishing and broadcasting
operation.
Until the FCC approves the new owners, banks and hedge funds led
by affiliates of Oaktree Capital Group (OAK), J.P. Morgan Chase
& Co. (JPM) and Angelo Gordon & Co., Tribune can't execute
its restructuring plan. That could mean limbo for parts of Tribune
that could be easy to sell, such as the company's stakes in the
Food Network and Career Builder.
Tribune, through a spokesman, declined to comment on what it
would take to put together a deal for the Food Network or other
stakes at a time when big investors are poised to seize control of
the company but don't have the final seal of approval.
As of the end of 2010, Tribune financial adviser Lazard
estimated that the Tribune pieces that were kept outside the
bankruptcy are worth as much as $2 billion. That includes the Food
Network, CareerBuilder and Classified Ventures, court papers
say.
"Clearly, there are portions of Tribune's assets that are pretty
good, and there are people out there that would be interested in
them," said Barry Lucas, an analyst with Gabelli & Co.
Friday's confirmation ruling from Judge Kevin Carey of the U.S.
Bankruptcy Court in Wilmington, Del., was expected. Tribune, after
all, failed last year to win confirmation of its restructuring
plan, so it had plenty of time to work out the legal bugs. Earlier
in the week, Judge Carey knocked aside the two remaining hurdles to
confirmation, overruling one objection and persuading the objector
to withdraw another.
Investors in Tribune's debt have already waited more than three
years for a return. The Chicago-based owner of the Los Angeles
Times, Chicago Tribune and other daily newspapers and operator of a
chain of broadcast stations filed for bankruptcy protection in
2008, less than a year after a disastrous buyout deal led by
real-estate mogul Samuel Zell.
J.P. Morgan and the other banks that financed the LBO plunged
into the transaction for the fat interest payments it was supposed
to generate. What they got instead were lawsuits blaming them for
the company's ruin. Lower-ranking creditors said the banks, with
their eyes on the fees, pushed through a deal that doomed Tribune
to bankruptcy.
Now, having bought their way out of the litigation by way of a
settlement built into the Chapter 11 plan, the banks will own
Tribune, an assortment of news and entertainment assets--but not
until the FCC gives the OK.
Tribune attorneys have predicted that at least six months of
action before the regulators will be necessary before the agency
grants clearance, including waivers of rules limiting
cross-ownership of newspapers and broadcast outlets.
It could take longer than six months, said Andrew Schwartzman,
longtime chief of the Media Access Project, a nonprofit group that
campaigned to boost public access to the airwaves. Media Access
shut down in May, out of funding after four decades in
operation.
Tribune is "going to get a very tough review because, first of
all, the waivers granted to Zell in the first place were never
completely resolved," Mr. Schwartzman said.
Even more importantly, he said, Tribune's bankruptcy
"festivities" have lasted so long that the FCC has gone down to
defeat in its efforts to liberalize the rules. Tribune, along with
News Corp. (NWS, NWSA), which owns The Wall Street Journal and Dow
Jones Newswires, was involved in a failed effort to get the Supreme
Court to restore looser FCC rules that a federal appellate court
had knocked out.
"Earlier, more stringent rules are in place and there are
serious questions about whether the successor entities would be
able to justify all of the waivers," Mr. Schwartzman said.
Oaktree, J.P. Morgan, and Angelo Gordon all have significant
media holdings, which could complicate Tribune's push to persuade
regulators to waive rules meant to limit the amount of power a
broadcaster can have in any given market.
"The concern is diversity in the marketplace of ideas," Mr.
Schwartzman said.
The prospect of trouble before the FCC for the company's new
owners loomed large in confirmation arguments last year, with plan
foe Aurelius Capital Management warning delay could be
extensive.
Mark Prak of Brooks, Pierce, McLendon, Humphrey & Leonard
LLP, on the witness stand as an expert for Aurelius during a
confirmation contest, said Tribune's new owners will be looking for
profit, but that means they will want to keep regulatory
interference at a minimum.
"These entities tend to want exactly what the [Federal
Communications] Commission doesn't want them to have, which is the
potential for control or influence over the operating affairs," Mr.
Prak said.
Tribune's lower-ranking creditors also have a long wait for the
ultimate payday. They are counting on collecting big damages from
lawsuits over the 2007 buyout, which will be pursued by a special
trust that will be set up under the Chapter 11 plan.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Peg Brickley at peg.brickley@dowjones.com