50 cents will get you a copy- $2.2 billion will get you the L.A. Times.

Anyone wishing to buy the Los Angeles Times should get ready to write a check for at least $2.2 billion. But the current owner probably won't sell it, according to a new report from Merrill Lynch analyst Lauren Fine.

Speculation about selling the Times first surfaced in June thanks to a letter from the investment trusts of the Chandler family, owners of the newspaper before it sold to Chicago-based Tribune Co. in 2000. The letter, filed with the Securities & Exchange Commission, complained that Tribune's current strategy of trying to integrate TV and newspaper assets hadn't worked. Instead, the company should split its TV and newspaper assets into separate companies.

After months of resisting the strategy switch, the Tribune board announced on Sept. 27 that a special committee will explore "alternatives for creating additional value for shareholders. The process is expected to conclude by the end of 2006."

But according to Fine's report, dividing the assets won't unlock much hidden value. She puts the fair market price of Tribune stock at $33 per share. Following the announcement of the strategic review the stock quickly jumped 10 percent higher, but it now trades for about $33.

The report examined six strategic options, including selling all the Tribune assets piecemeal. As part of that option, the analysis put the price of the Times between $2.2 billion and $2.4 billion.

However, Tribune would lose valuable tax benefits by selling the Times. Corporations can value assets based on their last selling price, so updating and increasing that price jacks up the tax payments. "Since Tribune has owned its newspapers for quite some time and inherited the tax-basis of the Times Mirror newspapers, the tax basis is likely quite low," states the Merrill Lynch report. "The low basis could explain why Tribune management seems to be reluctant to sell the Los Angeles Times despite reported interest from local billionaires."

Those billionaires include Eli Broad, cofounder of KB Home, and David Geffen, cofounder of DreamWorks Animation SKG Inc. (Separately, 20 local civic and business leaders, including the Business Journal's publisher, Matt Toledo, wrote a letter last month urging Tribune to invest more money in the Times.)

The report estimates 2006 revenues for the Times at $1.1 billion, with an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 21 percent, or $228.7 million.

The report values Tribune's other L.A.-based asset, KTLA-TV (Channel 5), at $737 million. The station will garner estimated revenues of $166 million this year and should have an EBITDA margin of 35.5 percent ($59 million).

As recently as early 2004, Tribune traded at more than $50 per share. In contrast to Fine, Morningstar analyst James Walden views Tribune as currently undervalued and believes that "any of these scenarios could unlock tremendous value for shareholders."

BY JOEL RUSSELL

Staff Reporter