Two important developments. First, the Chandler partnerships that were complicating any effort to reshape the company have themselves been restructured - but not dissolved. The decision to restructure came on a unanimous vote (with Chandler family representatives abstaining). Second, the board has established an independent special committee "to oversee management's exploration of alternatives for creating additional value for shareholders," according to a news release. That process is to be completed at the end of the year.

**Update: Tribune's squabble with the Chandlers appears to be over, at least in public. "The Chandler Trusts are pleased that we reached an agreement that serves the interests of all Tribune shareholders. We will now work collaboratively with management and the board to build value for all shareholders," said Warren B. Williamson, chairman of the Chandler Trusts.

So what does it mean? Well, Tribune CEO Dennis FitzSimons said "the restructuring of these partnerships frees the company to move quickly to pursue strategic alternatives to further enhance shareholder value." That could mean most anything - from an outright leveraged buyout to selected asset sales to some sort of spinoff. By the way, there's no mention in the two-page release of the LAT problems - nor any indication of whether or to what extent it was brought up today.

The partnerships are a big deal because they carry major tax consequences for whatever it is that Tribune decides to do. They contain $3.5 billion in assets. But there would be other tax complications for the company, even if the Chandler partnerships were dissolved. That might explain today's decision to let the Chandlers maintain a 95 percent interest in the partnerships.

There's a good chance that at least some large shareholders will push for a major overhaul of the company. John Miller, senior VP for portfolio management at Ariel Capital Management, Tribune's fourth biggest shareholder, expressed support for a leveraged buyout. "Often times it's a much cleaner transaction," Miller told Reuters. "Management and the board can just spend a considerable amount of time ... concentrating on the long-term economics of the business as opposed to worrying whether or not they'll meet Wall Street estimates for the next quarter."

None of what happened today in Chicago suggests much interest in selling off the LAT itself - as many of us have been suspecting. It's a major revenue generator for Tribune Publishing and besides, there would be major tax hassles.

One big question is why were those partnerships just restructured instead of being dissolved. For the last few weeks, several media reports had both sides - the Chandler family and Tribune - close to deal. As noted by the Chicago Tribune last week:

The two partnerships, called TMCT I and TMCT II, were entered into by the Chandlers and Times Mirror Co. in 1997 and 1999, respectively. They allowed the Chandlers to diversify their Times Mirror holdings through a tax-free swap of family stock for company assets. However, the partnerships had to stay intact for seven years to preserve the tax benefits. In 2000, Tribune, which owns the Chicago Tribune, bought Times Mirror for $8.2 billion and inherited Times Mirror's 50 percent interest in the partnerships.

The seven-year date for TMCT II passed this month, freeing the two sides to craft an end to both agreements. But talks have stumbled over several issues, including the valuation of preferred stock in the partnerships and a tax liability of about $70 million Tribune would incur because of an IRS rule that kicked in when it bought Times Mirror.

Early AP story
Press release on jump
FitzSimons memo to Tribune employes on jump

CHICAGO, Sept. 21 /PRNewswire-FirstCall/ -- Tribune Company (NYSE: TRB) said today that its board of directors has established an independent special committee to oversee management's exploration of alternatives for creating additional value for shareholders. This process is expected to conclude by the end of 2006.

"In pursuing the leveraged recapitalization that was launched in June, we emphasized that it would not preclude us from pursuing other value-creating initiatives in the future," said Dennis FitzSimons, Tribune chairman and chief executive officer. "Today's actions, along with our performance improvement plan, are consistent with our overall objective to generate the most value for all Tribune shareholders."

Named to the special committee of the board were Enrique Hernandez, Jr., Betsy D. Holden, Robert S. Morrison, William A. Osborn, J. Christopher Reyes, Dudley S. Taft and Miles D. White. "Management and the board have been working together to determine the best course of action for creating shareholder value. The board unanimously agrees with this approach, and we will work expeditiously to complete the process," said Osborn, Tribune's lead independent director.

The company also announced today the restructuring of two partnerships known as TMCT, LLC (TMCT I) and TMCT II, LLC (TMCT II), which it inherited six years ago in its acquisition of Times Mirror. In a unanimous vote, with Chandler family representatives abstaining due to their interests in the partnerships, Tribune's board approved the terms of the transaction.

The two partnerships currently own all of Tribune's preferred stock, 51.3 million shares of Tribune common stock, real estate used by the Los Angeles Times, Newsday, Baltimore Sun and Hartford Courant, and various other investments.

Under the terms of the restructuring, Tribune will receive distributions of all of the Tribune preferred stock and approximately 39.5 million shares of the Tribune common stock held by the partnerships. Tribune also will receive the right to acquire the real estate owned by the partnerships in January 2008 for $175 million. Additionally, Tribune will retain a 5% interest in the partnerships.

The Chandler Trusts will retain a 95% interest in the partnerships. The two partnerships will distribute within 30 days the 11.8 million shares of Tribune common stock remaining in the partnerships to the Chandler Trusts. As a result, the Chandler Trusts will increase their holdings of Tribune common stock to approximately 48.7 million shares from approximately 36.9 million. The Chandler Trusts have agreed to vote these additional 11.8 million shares in the same proportion as all other shares are voted on any matter requiring a shareholder vote for a period of 12 months from the date of this distribution.

As a result of the distributions, the number of shares of Tribune common stock outstanding will increase by 1.6 million. The reason for this increase is that the 39.5 million shares of common stock Tribune is receiving is less than the 80% of the common stock in the partnerships that Tribune currently treats as treasury stock for financial reporting purposes. Tribune's earnings per share will not be affected by the restructuring because the impact of the increase in shares outstanding will be offset by the elimination of the preferred stock dividends. The company expects to record a one-time gain of approximately $45 million as a result of the transaction.

"The Chandler Trusts are pleased that we reached an agreement that serves the interests of all Tribune shareholders. We will now work collaboratively with management and the board to build value for all shareholders," said Warren B. Williamson, chairman of the Chandler Trusts.

"The restructuring of these partnerships frees the Company to move quickly to pursue strategic alternatives to further enhance shareholder value," said FitzSimons. "Under these terms, all shareholders benefit."

In other business, the Tribune board of directors approved the sale of WLVI-TV (channel 56), Boston, to Sunbeam Television Corp. for $113.7 million. The sale was announced on Sept. 14, 2006, contingent upon board approval. The transaction will close upon regulatory approval.

The sale of WLVI is part of Tribune's performance improvement plan announced May 30. The plan includes at least $500 million in asset sales and approximately $420 million have been identified so far. On Aug. 7, Tribune completed the sale of WATL-TV in Atlanta for $180 million in cash. In July, Tribune sold 2.8 million shares of Time Warner common stock for net proceeds of approximately $46 million. In June, the company announced the sale of WCWN-TV in Albany for $17 million.

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MEMO TO TRIBUNE STAFF

Dear Fellow Employee:

Tribune’s board of directors met this afternoon and approved several important items. Full details are in our press release now posted on tribune.com and TribLink.

First, the board established a special committee of independent directors to oversee management’s exploration of strategic alternatives for the company designed to maximize shareholder value. The committee expects to make a final recommendation to the full board by the end of 2006.

During the strategic review process we will continue to execute the performance improvement plan announced last May. We’re making solid progress on many fronts, and your efforts are appreciated.

Also today, the board reviewed and approved a plan to restructure the partnerships known as TMCT I and TMCT II. Tribune inherited the partnerships when it acquired Times Mirror in June 2000. The transaction agreed upon today benefits all Tribune shareholders. Among the advantages, it

· simplifies our capital structure by eliminating all preferred stock;

· has no impact on Tribune’s earnings; and

· it frees the company to explore all strategic value-creating alternatives.

We will keep you informed of any new developments associated with today’s board actions. Thank you for your dedication during this important time in Tribune Company’s history.

Sincerely,

Dennis