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TV Firm Belo to Spin Off Newspaper Business

Belo said Monday it plans to spin off its newspapers -- which have been struggling to keep readers and advertising dollars -- into a new company that will operate separately from its 20 television stations.

Belo shares rose $2.70, or 15.6 percent, to $20.06 in midday trading after rising as high as $21.99, or 24 percent, earlier in the day. Its shares have traded in a 52-week range of $15.61 to $22.94.

Investors had pressed Belo to consider splitting the TV and newspaper businesses, but Chairman and Chief Executive Robert Decherd had resisted. In February, he said the newspaper side of the company was too small to stand on its own.

On Monday, Decherd said the split recognized the "profound" changes in both businesses, and was good for shareholders.

Decherd will run the newspaper business, which will be called A.H. Belo, the company's name from 1865 until 2001.

It will own the company's flagship paper, The Dallas Morning News, as well as The Providence Journal and The Press-Enterprise of Riverside, Calif. It also will own the newspapers' Web sites, direct mail and commercial printing businesses.

Those operations have about 3,800 workers and annual revenue of about $750 million.

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Decherd said the newspaper businesses would be given a fresh start and would not inherit any of Belo's debt.

The remaining television company will also own two regional cable news channels. The TV group has about 3,200 employees and generates annual revenue of more than $750 million.

Decherd plans to become non-executive chairman of the TV company. Belo President and Chief Operating Officer Dunia Shive will become president and CEO of the TV business.

Benefits and Debt Dangers

By spinning off the newspapers instead of the TV stations, Belo won't have to reapply for its TV licenses, Decherd said.

The spinoff would be made through a tax-free distribution of A.H. Belo shares to current Belo shareholders. The spinoff is expected to be in the first quarter of 2008.

Fitch Ratings immediately downgraded Belo's debt to junk status, saying the spinoff would take away about one-third of the company's gross earnings. It said Belo's key voting shareholders were taking on more financial risk with the move.

Decherd told analysts he expected such downgrades of Belo debt, but he said the agencies might have cut their ratings on Belo even without the spinoff because of concern about the newspaper business.

In the second quarter of this year, revenue at Belo's TV stations rose 2.5 percent from a year earlier, but the newspapers' revenue fell 8.5 percent on weak advertising conditions. The housing slump in Southern California has hurt The Press-Enterprise, and the Dallas paper is still digging out from overstating circulation figures several years ago.

Decherd said the spinoff should improve investors' view of the financial health of Belo because, "We're taking the assets that are perceived as being most challenged, and moving them out."

"We're tired of being on the defensive," Decherd added. "We think this is a way to get on offense and win in both businesses."

Both A.H. Belo and Belo will remain Dallas-based and have two voting classes of common stock after the spinoff: Series A shares that carry one vote per share, and Series B stock with 10 votes per share. That's the current structure used by Belo and many other media companies, which forms a high barrier to hostile takeovers.

The ticker symbol for A.H. Belo has yet to be determined.

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