|It's Official: NYT is Junk
Posted 10/28/2008 ET
Friday, the New York Times endorsed Barack Obama for President as “the right choice” to follow the “battered, drifting and failed leadership” of George W. Bush.
That wasn’t a surprise. The real news came from another part of town: Yesterday, Standard & Poors slashed the New York Times rating on its $1 billion debt to “junk” status.
Coincidence, or cause and effect?
The fact is that the aloft New York Times has been adrift and unresponsive to the marketplace for years, and now it’s paying the price for its anti-business agenda. (It is only one of a handful of stodgy big corporations to hold onto its socialistic “defined benefit” pension play for employees--most other major corporations have switched to market-oriented “defined contribution” 401k plans.)
On Thursday, the Times, which owns The Boston Globe, International Herald Tribune, and 16 other daily newspapers, reported a steep drop in third-quarter profits and print advertising as more subscribers go online. The board announced that it is seriously considering cutting its dividend.
Not surprisingly, the company’s stock price declined 20% this week, and has fallen 80% since 2004.
Shortly after the release of the bad financial news, Standard & Poors slashed its credit rating to "BB-," or junk status, and Moody's Investors Service changed the rating outlook for the Times from stable to negative.
Now the good news. A shareholder revolt is in the making that could reshape the New York Times and its illiberal agenda.
Last year, shareholders of the company gave voice to their growing displeasure with the company's management by withholding 42% of their votes. This represented more than half of the investors who are not part of the Ochs-Sulzberger family that owns a 90% interest in the super-voting B shares. Chairman and Publisher Arthur Sulzberger Jr. said he understood the frustration reflected in the vote.
But shareholder anger has only increased during the last year as the stock has plunged. More shareholders are clamoring for Sulzberger to either restructure the company, sell it, or take it private.
And shareholders now have powerful new activists to prod management along. Philip Farcone, of Harbinger Capital Partners, and Scott Galloway, of Firebrand Partners, two hedge-fund managers who specialize in targeting troubled companies, have both amassed a substantial stake in the company. (Galloway and his partners alone have accumulated 28 million shares, just under 20% of the Times.)
And last month, Mexican billionaire Carlos Slim, the world’s second-richest man with a net worth of roughly $60 billion, also jumped in the fray, buying 6.4% of the company.
These shareholders are clearly demanding change in The New York Times franchise and its long-term strategy to drive increasing internet revenues. But they also see an opportunity to lean on management to unlock the value in these shares, and maybe even change the notorious editorial page.
With the pressure mounting, I believe The New York Times will be restructured, sold or privatized in less than a year.