Tuesday, January 20, 2009

How Slim could end up owning NYT

Billionaire Carlos Slim Helú gained the inside track to buy the New York Times Co. when he lent the publisher $250 million to avert a looming default.

Though NYT is not for sale at the moment, the continued deterioration of its business could unleash the sort of pressures in the controlling Ochs-Sulzberger family that have led to the sale of a number of newspapers in the past.

Slim’s timely loan to the NYT not only nets him a prodigious 14% annual interest rate but also warrants that will enable him to buy enough stock in the company to nearly triple his stake to 18% of its common shares.

As a creditor entitled to all manner of financial information, Slim will get not only a detailed view of the company’s finances but also the right to put the screws to NYT the minute it violates any of the terms of the loan.

At a time when few financiers are willing to lend to newspapers, Slim had more than a few reasons for helping NYT avoid the possible default on $400 million in debt that is due for repayment in the spring.

One is that he wanted to protect the worth of the shares he already owns in the company, which have lost more than half their value in four months and today are worth some $60 million. Another is that juicy interest rate, which will boost the company’s borrowing costs by almost 50% to $74 million.

But the real appeal for Slim may be that he sees the loan as a major step in a sequence of events that eventually could enable him to buy the company publishing one of the most important newspapers in the world.

Here’s how that might play out:

After the company’s operating profits fell by 38% in the first nine months of 2008, NYT was forced it to cut its dividend by three-quarters. This had a huge impact on the Ochs-Sulzberger family members who own the super-voting shares that control the company, because it trimmed their collective annual stipend to less than $7 million from $28 million.

If the newspaper business continues to deteriorate, NYT would be forced to choose between making further cuts in the dividend or making substantial reductions in the ample resources still afforded the flagship newspaper. Or both.

Any of the above outcomes likely would provoke tension between the family members who want to preserve what's left of their dividends and those who want to maximize the resources available to the Times.

In other words, the conditions would be ripe to set off the classic conflict that has put many a newspaper in play.

One roughly similar example is Dow Jones, which Rupert Murdoch picked off in 2007 for a sumptuous $5 billion after wearing down the resistance of a majority of the heirs of the founding Bancroft family. Beyond the five bil from Rupert, the chief motivation to the heirs was the company's anemic stock price.

Although the family at the NYT is smaller and reportedly more attached to the New York Times than the Bancrofts were to Dow Jones, the affection for the paper among the NYT clan actually could motivate them to accept a well-timed, too-big-to-refuse deal from Slim.

In addition to wafting an eye-popping sum at the NYT family to ease the pain of forsaking their birthright, Slim could promise to sustain the resources and integrity of the Times. Murdoch made a similar pledge to seal the deal for Dow Jones, which he kinda, sorta honored.

With a fortune estimated at $60 billion by Forbes magazine, Slim got to be the second wealthiest man world by employing tactics that the New York Times once characterized as being worthy of a 19th Century robber baron.

Another contender to buy the NYT once might have been the Harbinger shareholder group that accumulated a fifth of the company’s common stock before Slim turned up. But the group has been unwinding its position after losing as much as nine figures during the precipitous drop last year of NYT stock.

The Harbinger hangover is bound to frighten off other hedge funds, assuming any survived the September surprise. With Harbinger out of the picture, Slim is in the catbird’s seat.

The Dow Jones acquisition didn’t come swiftly and the courtship of the NYT clan won’t be any quicker.

Unless an unexpectedly rapid and convincing turnaround in the publishing business helps NYT substantially lighten its $1 billion-plus debt load, then Slim will be well positioned to make a run at the company when, as they say in the Cialis commercials, the moment is right.

2 Comments:

Anonymous Doug Poretz said...

What will make the moment right? A low price by itself will not make the moment right unless there are assets worth having. What would that be? what would it be worth? Relative to the future value of the company, a purchase may be too expensive under any terms. I remember when Indian Mototcycles went into receivership, the greatest value of what was once one of the greatest motorcycle companies in the world -- and adored by fans more than Harley Davidson -- was its logo which could be used for licensing to tee shirt companies, etc. Is that the fate of the NY Times?

4:20 AM  
Anonymous Dave D. said...

...Nary a word here about Newscorps aquisition of the NYT, something which is said to be at the top of Mr. Murdochs 'I wanna' list. Could he really qualify, since he owns Dow Jones and they own The Journal ? I dunno, but he can poison pill the NYT by bidding up the price to Slim so high that it will never make a profit, something it may never do anyway, even if it were given away. Mr. Slim didn't get rich throwing money away. The other poison pill being that the A stock owners will never settle for less, once knowing what they coulda, shoulda, woulda got had Rupert been able to seal the deal. Do you think Mr. Slim will become a U.S. citizen ? Mr. Murdoch did. Hard to believe the Mexicans would let their communication system be controlled by an American. Hard to think the hinterland ( 86% of the NYT is sold outside the NY area ) would buy into an immigration amnesty shilled by a Times owned by a Mexican national. Maybe, we will see.

10:14 AM  

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