Fooling with Fire: Tribune Financial Picture/Rebuy Plan

[sunnydoo]

Tribune

 

Interesting read this is- seems a lot to give up just for stock price. $2B rebuy of stock on all debt load. $500 Million of assets sold to back up loans.

 

A couple of key points.

 

First, the debt ratio will go from about 54% of assets to about 62-67% depending on which assets they do sell.

 

Second, What $500 million in assets are they planning to sell?

 

Third, This is going to cost them a lower bond rating- moving them into BBB- territory. That is only a couple of notches away from the dreaded B rating that can have very negative consequences.

 

Lasty, Why is the ROA and ROE so low, and the dividend rate so high? The Tribune does not figure well in their industry on these categories.

 

I hope this isnt the beginning of the end and that FitzSimons knows what he is getting himself into.

Edited May 31, 2006 by sunnydoo

[Derwood]

i'm sorry, what now?

[A New Era]

Yeah. huh?

[Sammy Sofa]

They specifically state that the Cubs will NOT be included in the $500 million.

[3finger]

I'm just lovin' the phrase "significant structural headwinds" in the article. Sounds like what the Cubs are facing this season.

[dnana86]

Tribune

 

Interesting read this is- seems a lot to give up just for stock price. $2B rebuy of stock on all debt load. $500 Million of assets sold to back up loans.

 

A couple of key points.

 

First, the debt ratio will go from about 54% of assets to about 67% depending on which assets they do sell.

 

Second, What $500 million in assets are they planning to sell?

 

Third, This is going to cost them a lower bond rating- moving them into BBB- territory. That is only a couple of notches away from the dreaded B rating that can have very negative consequences.

 

Lasty, Why is the ROA and ROE so low, and the dividend rate so high? The Tribune does not figure well in their industry on these categories.

 

I hope this isnt the beginning of the end and that FitzSimons knows what he is getting himself into.

 

heh, out of curiosity, what do you do for a living that you know your finance so well?

[E.J.]

Ha. Glad I'm not the only one who has no idea what's going on in this thread. :D

[Ding Dong Johnson]

i'm sorry, what now?

 

Money and stuff.

[Wilmo]

Holy crap! I am totally lost just in reading the post. Hell, I didn't even open the article. Guess I'll stick to slinging Pepsi.

[Mizzou]

I just graduated with a degree in business administration. Now I feel stupid because I can't make any sense out of Sunnydoo's post. I wish I would've paid attention in my finance classes.

[sweetpeteman]

I understood it. Of course, I just took an accounting class.

[RynoRules]

I got it because I used to work for a Fortune 200; wouldn't expect any normal people to get it.

[Butterscup1679666578]

I'm a journalism major...so I'm no good with them there number things. Explanation please.

[mhuber92211]

Basically the Trib is going to increase their debt to buy back outstanding stock which (theoritically) would make their stock more valuable and eventually increase which would lessen their debt and raise the value of the company. The "loans" are being funded by selling $500 mil worth of assests as colateral for the $2 bil loans

[bhogg]

So, basically the Trib is grasping at this point.

 

 

Going into debt is never a good idea in these situations, but it might be all these dudes have left.

[Fred Hornkohl]

The market loved it. Tribune Co closed at 29.86 (a 2 month high) up 1.97 (or 7%) on a day when the DJIA was off 184 points.

 

Go TRIBUNE !!

[Lefty]

I'm a journalism major...so I'm no good with them there number things. Explanation please.

 

Geez, I hope you never have to write about economic or budget issues.

[sethuel1]

The market loved it. Tribune Co closed at 29.86 (a 2 month high) up 1.97 (or 7%) on a day when the DJIA was off 184 points.

 

Go TRIBUNE !!

 

Time for a Tribune Co. spreadsheet?

[bleedcubbieblue]

I'm a journalism major...so I'm no good with them there number things. Explanation please.

 

The Tribune is betting that ultimately their stock will go back up, which in the short term(yesterday), it did. But if their circulation and other outlets do not start doing better, and their stock goes down along with revenues, it will mean bad things for the Tribune. But the good news is, the Cubs have nothing do to with Tribune revenues, they operate as their own separate entity, which means that the payroll should stay the same, regardless what the Tribune is doing. Although, that is if you believe this statement as being true, which I don't. For some reason, a small part of me hopes that they do not do better and revenues keep shrinking, because it should ultimately mean that they may have to sell off the Cubs to raise revenue down the road.

 

I guess this means that all that revenue they have been hiding with the radio and tv contracts they seem to underestimate year in and year out, cannot no longer substain the Tribunes overall profits. (this last part is sarcasim)

 

BCB

Edited May 31, 2006 by bleedcubbieblue

[Careless]

So, basically the Trib is grasping at this point.

 

 

Going into debt is never a good idea in these situations, but it might be all these dudes have left.

Large companies are always in debt. All that matters is how much debt they have relative to their income and assets.

[UBlink]

It looks like they're increasing their leverage dramatically. Put in simple terms, they think they are going to be able to earn more than what they're paying on their debt, with the residual going to the shareholders. The problem I see is that with a return on assets of less than 4% for the last 5 years, this doesn't look like a great bet. If they are able to sell their "non-core" assets at a price such that it reduces their assets more than it reduces their earnings from those assets that will help a little bit. So will reducing costs by $200 million.

 

Leverage can work for you and against you. What this capital restructuring does is make both the debt and the equity returns more risky. If earnings improve they will look like geniuses - if they don't the stockholders will lose big time. What they really need to do is get a better return from their assets, not just reorganize the balance sheet.