How activists aim to help NYT
“The next three to five years hold great risk and great opportunity for the New York Times,” says an individual familiar with the efforts of Firebrand Partners and Harbinger Capital Partners, the two firms who disclosed Friday that they have teamed up to seek the four seats on the 13-member board available to public shareholders.
“This is not a fight about the dual-class structure” that gives members of the Ochs-Sulzberger family effective control over the company, said the source, who requested anonymity. “The focus is purely on ensuring the health of an asset that will face erosion if the business continues to erode.”
In a transaction that took more than a year of quiet planning, Firebrand, a New York-based investment strategist, secured the financial backing of the $20 billion Harbinger hedge fund to acquire a 4.9% stake in NYT Co. The stake is worth some $113 million at today’s market price.
The source said the investors, who regard the company’s shares as “dramatically undervalued in terms of their potential,” would not discuss whether they are buying additional shares. NYT stock today closed at $16.07, a gain of about 10% from the 52-week low it hit last week in the days before the activists revealed their plan.
News of the effort to secure the NYT board seats broke a day after Harbinger publicly disclosed that it had boosted its stake in Media General to 21% of the company. “That’s a different deal,” said the source. “The transactions are unrelated and it was an unfortunate coincidence.”
The investors are pursuing the seats on the NYT board because they believe the company to date has failed to make the business decisions necessary for it to flourish in the Internet era.
“The greatest threat to the New York Times is the continued diminution of its business model and destruction of shareholder value, both of which imperil the company’s ability to invest in and maintain the tradition of journalistic excellence that has made the New York Times one of the most trusted brands in the world,” said the investors in a letter to management filed with the Securities and Exchange Commission.
“The board is incredibly impressive and experienced but really has neither the zeal nor requisite focus on what needs to get fixed in the business,” elaborated the source in an interview. “A strategic audit of the business would reveal core and non-core assets. The sale of non-core assets would free up capital for significant investment in new media, which can grow more rapidly at higher margins” than traditional media.
Non-core assets could include the International Herald Tribune, the Boston Globe, the regional newspaper group, a minority interest in the Boston Red Sox and even the company’s new Manhattan office building. (Estimated values of these assets are here.)
“The focus and future is online,” said the source, who stressed that the group has no preconceptions about what assets might be expendable. “What needs to happen is significant investment to accelerate growth of audience and revenue.”
Likely areas for new investment could be free-standing Internet sites like About.Com, as well as deeper online coverage by the flagship paper of such topics as business, technology, fashion and other topics coveted by premium advertisers.
Three of the four activist directors nominated for the NYT board are Internet-savvy entrepreneurs, whose backgrounds and outlooks are likely to diverge significantly from those of many of the members of the current board. The activist slate consists of:
:: Firebrand founder Scott Galloway, the former chief executive of the Red Envelope online shopping service.
:: Gregory Shove, a former executive at AOL during its heyday.
:: Allen Morgan, a managing director at the prestigious Mayfield venture fund who has invested in everything from Tagged, a teen social site, to PlanetOut, the gay media company.
:: James A. Kohlberg, co-founder of the private equity firm Kohlberg & Co.
As an example of what the source termed the “constructive dialogue” the activists hope to achieve with the NYT, he cited the group’s purchase in late 2006 of 11% of Gateway, a pioneering mail-order computer company that had fallen on hard times. The activist group, which gained two Gateway board seats, eventually helped guide the sale of the company to Acer.
Does that mean NYT could be sold, too? “I can’t see that outcome, unless the family is willing to do that,” said the source. “This is a long-term play focusing on growth, a realignment of assets and a real doubling down on the core business.
“No one is trying to portray this initiative as some sort of a benevolent act,” he continued. “But the investors believe the enhancement of the public trust is not at odds with the goal of profit maximization.”