The acquisition of Kearns-Tribune Corp. by cable giant Tele-Communications Inc. for $627 million in TCI stock became all but a done deal Thursday as the Salt Lake newspaper publishing company's board of directors, which accounts for some 70 percent of the shares, gave the sale its stamp of approval.
Kearns-Tribune owns The Salt Lake Tribune and four other newspapers in Lewiston and Moscow, Idaho; Pullman and Colfax, Wash.; and Sparks, Nev.The sale price includes $286 million for the newspapers and other Kearns-Tribune assets and about $341 million worth of TCI stock owned by Kearns-Tribune.
Regulatory approvals are still pending, but the sale is expected to be completed by September.
Dominic Welch, president of Kearns-Tribune and publisher of the Tribune, termed the decision to sell "exciting but painful," following the board meeting Thursday.
"It's kind of a sad thing for us. It's like putting your child up for adoption," Welch told the Deseret News.
The announcement of the pending sale on Monday shocked many people in the Utah journalism community who had watched for years as rumors that the "Trib" was about to be sold to Gannett, Knight-Ridder or some other giant newspaper company all proved false. The sale of the Tribune to a cable company based out of state leaves the Deseret News as the only locally owned daily newspaper in Utah.
DeAnn Evans, a University of Utah communications professor, expressed reservations that the Tribune's journalistic standards can remain untouched by the sale.
"When big corporations own the media, it's always worrisome," Evans said. "I hope there is a firewall between corporate ownership and the newspaper itself. Some have felt that even the Tribune's ownership of a big block of TCI stock compromised the paper in its coverage of TCI."
Anne Hoag, assistant professor of communication at Penn State University, who is writing her doctoral dissertation on TCI, said the move to buy the Kearns-Tribune newspapers is a major departure for TCI but is not unlike those by other media companies, such as Time Warner.
"They (TCI) are banking heavily on electronic commerce and electronic publishing for its @Home service," Hoag said. @Home provides high-speed access to the Internet through cable modems that are 1,000 times faster than traditional modems using telephone lines.
Jay Rush, associate professor of communications at Brigham Young University and former cable industry executive, agrees. He noted that TCI may be interested in following the model of Comcast, which has linked up with newspapers in Florida to provide localized news service on its cable channels.
"They (TCI and Kearns-Tribune) will have to be smart about repackaging and repurposing the information," Rush said.
Welch denies that the new ownership will compromise the Tribune's coverage of the cable industry, and that claim was supported by the fact that the newspaper ran an Associated Press article on Thursday that featured comments critical of the deal. The article reported some analysts' view that the sale is nothing more than a bid by TCI Chairman John Malone to get greater control of his company by grabbing Kearns-Tribune's TCI shares.
The acquisition of the Kearns-Tribune shares could increase his voting stock in the company from less than 18 percent to more than 22 percent. Kearns-Tribune currently controls 6.9 percent of TCI's voting stock.
Morris Mark, principal in Mark Partners, a New York investment firm, said he doesn't buy the idea that the stock swap is intended to benefit the Tribune.
"My guess is that it's to ensure that John Malone stays in control (at TCI). I wouldn't expect (TCI) to keep those (Kearns-Tribune) newspapers."
Bruce Leichtman, an analyst at Yankee Group in Boston, points out that the deal is much smaller if Kearns-Tribune's TCI stock is taken out of the equation.
"What is intriguing to investors may be the possibility of packaging advertising for newspapers with cable," he said. "Cable systems have traditionally under-performed in advertising."
Rather than Malone making a power play, Welch says he and John W. "Jack" Gallivan, Kearns-Tribune chairman and publisher-emeritus, made the first move. Gallivan has been heavily involved with TCI since its beginning in the 1950s and has sat on its board since 1980.
"Jack and I started it," Welch said. "We were looking for a media partner."
Welch said the goal was to protect the Tribune for the future, a future in which he believes newspapers will still exist but only alongside many alternatives for both readers and advertisers.
"Over time, our revenues are going to erode. I'm talking maybe five years. For example, we won't have the volume of classified ads; they're the most vulnerable."
Welch said the sale is bittersweet because Kearns-Tribune goes back to 1901, when the newspaper was bought by Sen. Thomas Kearns. But it's more than just a sentimental loss. Kearns-Tribune shareholders have enjoyed nearly a century of dividends from the shares; TCI never has paid dividends to shareholders, and some analysts say it never will.
That means the only rationale for the sale by Kearns-Tribune shareholders is potential capital gains in TCI's stock, which has been trading near its low of less than $12 per share.
"We see a lot of growth potential there (in TCI's shares)" Welch agreed. "We think TCI's back on track now that Malone's back in the driver's seat."
Had he ever left? "Well, he lost his focus, at least," Welch said.
Besides the increase in Malone's voting stock, is there any other reason why TCI would want to buy a handful of newspapers in the Mountain West? "Well, they want to use our database," Welch said. "But only time will tell if this was the right thing. In the future, you may look back and say I was an idiot. Or I may look back and say I was an idiot."
The main thing, Welch said, "is that this preserves the Tribune no matter where technology goes in the future."
As a hedge against what may go wrong, a new company, The Salt Lake Tribune Publishing Co., is being formed to manage the newspapers under contract with TCI. Its principals will be Welch; Philip G., Thomas K. and Sarah J. McCarthey; James P. Kearns; Robert Steiner; and A.L. Alford Jr.
The management contract will prevent TCI from selling the newspapers for five years and will give The Salt Lake Tribune Publishing Co. first right to buy if they are sold later.
"Basically, you could say this is a deal to find out if the teaming up of a newspaper and a cable company works to carry news and advertising," Welch said. "John Malone likes to do a lot of innovative things."
Whatever course the Tribune takes, Welch said it will have no impact on the operating agreement that Kearns-Tribune has with the Deseret News in their joint operating agreement, or JOA, in which the Newspaper Agency Corp. handles advertising, printing and circulation for both papers.
In an interview in the April issue of "Utah Business" magazine, Tribune editor James Shelledy was asked whether the newspaper is for sale. "That's always the rumor out there," he said. "There is currently nothing going on in that area, but they don't check in here about that."
Shelledy said the Tribune would have difficulty finding a buyer because it comes with two "poison pills," its TCI stock and the agreement with the Deseret News. He said the JOA is "not equitable" and is quoted as saying he doesn't see the contract lasting in its current form until its expiration in 2012.
But in no uncertain terms, Welch squelched the idea of tampering with the contract. "We don't agree with that," he said.
TCI operates cable systems in Utah serving about 213,000 subscribers. The Salt Lake Tribune is Utah's largest daily newspaper with daily circulation of 130,228 and 163,112 on Sundays.