April 30, 2015 Volume XLI, Issue IV Tribune Media Company NYSE: TRCO Dow Jones Indus: 17,840.52 S&P 500: 2,085.51 Russell 2000: 1,220.13 Trigger: No Index Component: N/A Type of Situation: Business Value, Post Bankruptcy Price: $ 56.07 Shares Outstanding (MM): 96.7 Fully Diluted (MM) (% Increase): 96.9 (+0.2%) Average Daily Volume (MM): 1.0 Market Cap (MM): $ 5,435 Enterprise Value (MM) proforma: $ 8,375 Percentage Closely Held: Oaktree 14% 52-Week High/Low: $ 89.99/53.82 5-Year High/Low: $ N/A Trailing Twelve Months Price/Earnings: 12.1x Introduction/Overview Price/Stated Book Value: 1.0x Tribune Media Company (“Tribune”, “TRCO”, or Net Debt (MM) pro forma: $ 2,940 “the Company”) is a holding company that owns a Upside to Estimate of portfolio of media and entertainment businesses Intrinsic Value: 52% including the largest independent broadcaster of local TV stations (39 owned and 3 operated) reaching 44% Dividend: $ 1.00 of U.S. households; WGN America (WGNA), a cable Yield: 1.8% network reaching 73 million U.S households; Gracenote, a provider of subscription-based services to Net Revenue Per Share: the video and music industries; a 31% stake in TV Food 2014: $ 20.12 Network (partnership that controls the Food Network 2013: $ 11.84 and Cooking Channel cable networks); and a 32% stake in online job placement firm CareerBuilder, among others. In addition to its media assets, TRCO Earnings Per Share: holds a vast real estate portfolio (~8 million square feet) 2014: $ 4.62 with significant re-development potential and, due to its 2013: $ 1.62 broadcast operations, valuable wireless spectrum. In December 2012, Tribune emerged from a Fiscal Year Ends: December 28 4-year long bankruptcy process, which was a function Company Address: 435 North Michigan Avenue of real estate magnate Sam Zell’s disastrous 2007 Chicago, IL 60611 leveraged buyout. Tribune Media spun off its publishing Telephone: 212-210-2786 business in August 2014 and began trading on the CEO/President: Peter Liguori NYSE in December 2014. Although Tribune Media reports the results of its operations in two segments, As of July 15, 2015 clients of Boyar Asset Management, Inc. own 30,855 shares at an average price of $55.56 of Tribune Media Television and Entertainment (88% of 2014 revenues) Company common stock. and Digital and Data (12%), its business is more Analysts employed by Boyar’s Intrinsic Value Research LLC own diversified than the segment reporting implies due shares of TRCO common stock. - 31 - Tribune Media Company to the fact that various minority investments are not consolidated and its real estate operations are reported in the corporate/other category. Shares of Tribune Media have declined by ~30% from recent 2014 highs (after adjusting for the recent $6.73 special dividend and publishing spin off) reflecting renewed concerns about traditional linear television that surfaced in the second half of 2014 and, more recently, meaningful selling (9.2 million shares or 10% of outstanding) by a group of creditors who gained control of the Company after its stay in bankruptcy ended. In our view, investors have over-reacted to recent industry issues and are overlooking the many opportunities within Tribune’s broadcasting business. We believe Tribune’s 2013 acquisition of 19 TV stations from Local TV (a private equity firm) could be a game changer for Tribune’s broadcasting business. As a result of the transaction, Tribune is now the nation’s top Fox affiliate (14 stations vs. 7 previously) and 57% of its stations are now affiliated with a top four network vs. 35% previously, which should help drive increased retransmission fees and higher advertising revenues. According to SNL Kagan, industry retransmission fees are expected to increase at a 14% growth rate between 2013 and 2020, and we would note that Tribune is currently underpenetrated in this high-margin revenue source. Meanwhile, the transaction also increases TRCO’s exposure to so-called swing states (~14 vs. 7) enabling the Company to command a meaningful increase in political revenues, which are expected to expand markedly as certain donation caps have been removed. While broadcast has ceded viewers to cable networks over the years, morning and evening news programming has experienced an uptick in its audience in recent years. We believe this is extremely important for Tribune given the Company’s strong news presence (75k hours annually) and the generally DVR proof nature of the genre (more attractive to advertisers) in today’s fractured media landscape. While Tribune’s national Cable network (WGN America) currently accounts for about 10% of Television and Entertainment’s revenue, the network has the potential to drive a significant amount of revenue and profitability for the segment over the next 3 to 5 years. Under new management, Tribune is repositioning the channel to a cable network (dual feed – east, west coast) from a superstation (single feed) in order to capture higher affiliate fees, advertising revenues and drive ancillary revenue streams from owned content. Early results of the transformation are encouraging with 50% of WGNA’s subs converting to a cable network, which is expected to generate an additional $85 million to $90 million in carriage fees during 2015. The remaining subs are expected to convert over the next two years and WGNA will likely garner additional distribution (WGNA has 73 million subs vs. ~95-100 million for fully distributed networks) as its investment in original programming gains further traction. While competition in the scripted drama space has intensified, Tribune’s CEO (Peter Liguori) and WGNA’s president (Matt Cherniss) were instrumental in building FX into a juggernaut at Fox during their tenure there, which should go a long way towards improving WGNA’s future prospects. Tribune’s investment in TV Food Network provides the Company with significant financial flexibility. Over the past 3 years, TV Food Network has provided Tribune with ~$150 million in average annual cash distributions. The cash flow from the investment has helped fund the investment in programming at WGNA and expand the capabilities in the Digital and Data segment. While management is content with its stake in TV Food Network, we would not rule out the potential that the investment is monetized and note that Tribune has divested two minority stakes recently for ~$500 million in net proceeds. Based on our projections TRCO’s investment in TV Food Network could be worth $2.9 billion and we believe there is the potential that the stake could be tax efficiently monetized at some point. While Tribune’s real estate and spectrum assets are not currently producing much in the way of cash flow, they could meaningfully impact the Company’s future valuation. Tribune currently has a portfolio consisting of ~8 million square feet and 1,200 acres of land including key locations such as the LA Times Building and Tribune Tower that offer attractive redevelopment opportunities. Meanwhile, Tribune has valuable broadcast spectrum that could potentially be monetized or used to establish partnerships with telecommunications firms. At current levels, we do not believe that investors fully appreciate Tribune’s portfolio of media assets. Based on our sum of the parts valuation approach, we estimate Tribune’s intrinsic value to be $85 a share, representing 52% upside from current levels. Management is heavily incentivized via equity compensation to unlock value of the Company’s assets and we would note that CEO Liguori holds nearly 300k options at an average exercise price of $68 a share. - 32 - Tribune Media Company Review of Tribune Media’s Recent History In 2007, real estate magnate Sam Zell sold Equity Office Properties, a publicly traded REIT consisting of 573 commercial properties that he had acquired over the preceding 30 years, to Blackstone in a $39 billion transaction. The timing of the sale, which represented the largest private equity deal at the time, could not have been better with the deal occurring at the peak of the real estate and credit bubbles allowing Zell to obtain inflated values for the assets. Mr. Zell subsequently acquired Media Company Tribune in a leveraged buyout executed in two steps (last closed in December 2007) that saddled the Company with roughly $13 billion of debt representing approximately 9x cash flow. Unfortunately, for Zell, the timing of the Tribune transaction could not have been worse. The complex transaction, which was predicated on low cost financing and completion of a few divestitures to pare debt, struggled from the very beginning as credit markets froze, potential acquirers of its non-core assets (Chicago Cubs) moved to the sidelines and the Company’s newspaper cash flow eroded rapidly as the economic/financial downturn intensified. A key component of Mr. Zell’s plan to unlock value from Tribune’s various assets was the conversion of the Company to an S-Corp ESOP (Subchapter S corporation owned by an employee stock ownership plan) following the transaction. Under the S-Corp ESOP structure, Zell would ultimately be able to tax efficiently monetize Tribune’s various low cost basis assets (many had been owned for decades, if not longer) since they would receive a stepped up basis after being held for 10 years. The S-Corp ESOP structure also had favorable ongoing tax benefits in that income and losses would be passed through to shareholders and since the ESOP is a qualified retirement plan, it wouldn’t have to pay taxes. Shortly after closing the Tribune transaction, Zell elaborated on the deal’s rationale relating to holding/divesting assets: “…we've undertaken this investment with the assumption that we would sell the Cubs and that we would sell the Comcast Sports interest.