The LBO uh-oh
“Um . . . actually, no,” Jon wrote back then of the controlling Ochs-Sulzberger family. “They don’t have to do anything. The Times’ Class B shares, which essentially control the company, are held by a family trust. Said trust is set up, in the wording of a company public filing, ‘to maintain the editorial independence and integrity of the New York Times and to continue it as an independent newspaper, entirely fearless, free of ulterior influence, and unselfishly devoted to the public welfare.’”
That was then and this is now. In a new column today, Jon suggested that the time might be at hand for the Ochs-Sulzbergers “to swallow hard, sell a bunch of properties, find a billionaire angel or two, make an offer for the 81% of the common shares [the] family does not own, and go private.”
While it is gratifying that Jon has come around to seeing the merit of the idea, the LBO-ing of the Gray Lady could be more difficult today than it might have been even three months ago. That’s because two major events have changed the landscape in the intervening time.
One is Rupert Murdoch’s offer to buy Dow Jones, which is controlled by super-voting family shares similar to those held by the NYT clan. If a wealthy suitor slapped a Murdoch-sized offer on the table at NYT, the family would have to scramble to find far more money to buy the company than would have been required before an unsolicited buyer came a-calling. The more the family has to pay to beat an outsider’s offer, the more assets it would have to sell, the more money it would have to borrow and the more operating expenses it would have to trim.
The other development since the spring is the sharp and sudden tightening in the availability of credit to fund a highly leveraged Tribune-style buyout of NYT. The lenders who liberally and inexpensively funded everything from sub-prime mortgages to Sam Zell’s aggressively-financed ESOP lately have begun worrying about the ability of borrowers to pay them back. So, they are increasing interest rates and, in some case, requiring buyers to pony up more cash to fund future transactions.
Given the continuing, if not to say accelerating, deterioration of newspaper revenues, the credit clampdown could make it more difficult and more expensive for the NYT to go private today than if it had closed such a deal earlier this year.
This is not to say NYT (or any other publishing company suffering from battered-stock syndrome) couldn’t go private if it wanted to. Going forward, however, the proportion of operating profits necessary to finance a newspaper LBO will consume a larger part of the company’s budget than if it had gone private before now.
If revenues continue to fall and borrowing costs get steeper, the only way to make ends meet, as evidenced in places like Minneapolis and Northern California, will be to cut such variable costs as headcount and news hole.
This might help get some deals done, but it's going to make it mighty challenging for newspapers to remain unselfishly devoted to the public welfare.