Monday, January 28, 2008

How activists aim to help NYT

The activist investors seeking four seats on the board of the New York Times Co. are trying to help rescue an endangered public trust, not challenge the ownership of the company, says one well informed source.

“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.”


Anonymous Anonymous said...

Why the simultaneous pressure to get three seats on Media General's board?
I think it's unrealistic to assume that these guys, the hedge fund guys, aren't looking to make money first. Any warm, fuzzy thoughts will swiftly melt away once the balance sheet comes out.
I understand the focus on the Internet, but what's their plan if they are able to exert any influence on either NYT or Media G?
NYT has made some mistakes on the Internet, some of which they're figuring out and correcting on their own. Some, like the purchase of and the websites purchased to shore it up, need continued attention. What are the new board members, if they can get on the two boards, going to do?
And, as always, NYT and all the major daily newspapers need to focus on selling the newspaper. Circulation management and sales departments have all been downsized to the point of being disfunctional in some cases. The lack of people to fill these business-side jobs has hurt newspapers just as much, if not more, than the loss of reporting positions.

10:05 AM  
Anonymous Anonymous said...

Ah, but the loss of reporting positions counts - especially when you look at the alternatives: wire services that are chronically understaffed and inexperienced (with bad contracts and bad pay that rival the newspapers'), and stringers who are paid a fraction of their costs (let alone their value) for the privilege of feeding quotes and pictures to overworked, frustrated editors.
Many of us experienced in the business have voted with our feet. Collectively, we represent the creativity and moxy the Times and other newspapers will need, not only to compete on the Internet but also for their still viable dead-tree products.
Yes, there are fine, young, versatile journalists out there. But talk with them after they've spent a year or two on the job. Few have plans to continue their news careers for long. And many more decide never to gain that first year's experience in a newsroom. Freelancers quickly find journalism is a hobby, not a profession. If they accept journalistic assignments, they must balance them with other work to pay their bills. Of course, such is also the root of interest conflicts. ...
I share your doubts fund managers will care more about journalistic quality and integrity than third- and fourth-generation news scions. But I don't believe they could care less than AOS Jr. about the folks who have made their products great.
There seems a collective myopia gripping news media management when it comes to the quality of their employees and products. And it resides amid a huge hypocrisy that allows them to damn Walmart and labor importers on their editorial pages, yet exploit and abuse staff and contributors to fill the rest of their rags - and deliver them - in hopes of eking a few more shekels from their "dying" industry.
If the new investors want to see their property flourish, they need to get realistic about nurturing and funding the creativity and experience required. They need to take chances, look long term, invest in people, both staff and freelance, encourage relationships based on honor and trust.
Paying photo stringers $200 for days that cost the stringers $400 - then demanding they turn over unlimited rights to use and reuse their work - is not the way to attract and retain the best and brightest. Neither is injecting such stringers (clearly good thinkers, since they accept less than their costs for their work) into an editorial mix of seasoned professionals.
Ultimately, it becomes what I call a "Lord of the Rings" problem: You can't use the tools of evil to do good. And you can't tell the truth by lying to those who help you craft the tale.
For more on the costs of independent photojournalism, see:

12:03 PM  
Anonymous Anonymous said...

For Marshrat:
I agree, having worked on the editorial side as a repoter for seven years. I voted with my feet as well to some degree, although I knew I needed experience in the rest of the business if I wanted to meet my personal goals.
I don't think it would be a bad idea for all reporters to spend some time out in the cold, delivering papers at 3 in the morning. I must admit, all bitching aside, I had an easy life as a reporter and it did not educate me on what the readers really wanted in their newspaper. Working building a business based on newspaper circulation did.

4:49 PM  

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