CHICAGO -- Times Mirror shareholders will walk away billions of dollars richer in the merger agreement with Tribune Co.
Overall, institutional shareholders could rake in $2.6 billion in the $8 billion merger deal. That is, if they are able to take advantage of the Tribune Co.'s $95-per-share cash tender offer for up to 28 million Times Mirror shares (which is approximately 48% of the shares outstanding).
As it now stands, the largest institutional shareholder -- Putnam Investments Inc. -- could make $241 million from the merger. Harris Associates LP would earn $62 million and Banc of America, $13 million. Overall, institutions held 28 million shares of Times Mirror stock as of the end of 1999.
In the hours after the announcement last week, Times Mirror Co. stock rose 3811/16, to 855/8, and institutional shareholders were smiling. As of March 16, Tribune stock rose approximately $1 a share since the announcement, while Times Mirror stock had risen still further, to 921/2 per share. Times Mirror stock has traded as low as 4711/16 per share in the past year.
Henry Berghoef, partner and equity analyst at Harris Associates, Chicago, plans to hold the 1.3 million shares of Times Mirror stock in his firm's portfolios but is not buying any more in anticipation of the merger.
"It shows there is a catalyst out there to get value out of the stock," Mr. Berghoef said of the merger announcement.
St. Louis-based Banc of America Capital Management Inc., a shareholder of both companies, also is generally bullish on the merger.
The investment firm had 2.1 million shares of Tribune Co. stock and 278,000 shares of Times Mirror stock as of Dec. 31.
Linda Bannister, senior industry analyst, believes the merger will provide many synergies, such as Internet capabilities, national advertising prospects and favorable pricing ability in buying newsprint and other items.
"Strategically, the combination makes a lot of sense," Ms. Bannister said. She would not discuss whether her firm intends to buy or sell shares in either company.
At Putnam, Boston, David King is holding onto his shares of Times Mirror and expects that he, like other investors, will accept the $95 per share cash tender offer and possibly hold onto a small number of Tribune shares.
Mr. King is a senior portfolio manager at Putnam, which is the largest institutional shareholder of Times Mirror stock, with approximately 5 million shares.
Traditional newspaper companies have been undervalued in the stock market as of late, Messrs. King and Berghoef said.
"It's sort of ridiculous to have companies that are perfectly well-run get no respect in the marketplace," Mr. King said.
While both analysts interviewed said the $8 billion the Tribune plans to pay for Times Mirror is a fair price, one portfolio analyst and holder of Times Mirror stock, who did not want to be identified, said the Chicago-based company would be paying too much.
"Relative to the current stock price, the Tribune paid a 100% premium for the deal," he said.
All the signposts for the combined company, mainly the loss of readership and loss of advertising in newspapers overall, are negative, he said.
But that view was in the minority among shareholders interviewed.
Tribune stockholders, although hit with the initial stock plunge, also are fairly happy with the merger.
The merger makes sense to Ken Shank, research analyst at Northern Trust Global Investments. The Chicago-based firm held 3.5 million shares of Tribune stock as of Dec. 31.
The publishing side of the Tribune has been a "little sluggish" and advertising growth has been slow, he said, but he has a strong belief in the vision of the Tribune's executives in the long run.
Ron Gala, senior vice president and portfolio manager with Mellon Equity Associates, still is holding Tribune stock and watching Wall Street analysts for their take on the merger.
Pittsburgh-based Mellon Equity holds 3.3 million shares of Tribune stock, a spokeswoman said.
One big question for Mr. Gala is how efficiently the Tribune can use the Internet and other new media. He plans also to keep a close eye on the Tribune's cash flows and earning prospects.
Indeed, all the executives interviewed stressed that how the newly merged entity, which will retain the Tribune name, handles the transition to the technology-based "new economy" will be key to its future.
In the past, rumors have circulated that a company like Yahoo! Inc. would buy Tribune Co. Northern Trust's Mr. Shank said such rumors might never become reality, but the possibility of a strategic partnership for content with an Internet company could happen in the next several years.
The Tribune might have proved its savvy already by investing in companies such as America Online Inc. and Peapod Inc.
While Harris' Mr. Berghoef believes print media are far from dead, it's the potential of the Internet portals and web advertisers that will help the business of the combined company, he said.
Other institutional investors also view both the Tribune and Times Mirror as good traditional plays, with new economy possibilities.
According to the Tribune, the combined company creates an Internet company with $55 million in projected 2000 revenue and an estimated 3.4 million monthly visitors.
Banc America's Ms. Bannister said there has been a fear industrywide of newspapers losing classified advertisers, and the Internet might be the answer to gaining advertising revenue for companies like Tribune and Times Mirror.