05/13/09 - 12:36 PM EDT
NYT , GOOG , CVC , MEG , NWS
The New York Times Co.(NYT Quote) continues to struggle. Even after raising $250 million from Carlos Slim at a 14% interest rate and selling its own building and leasing it back for another $225 million, the company is facing a bleak future in a bleak industry.
Advertising revenue keeps grinding down. It dropped 27% in the first quarter alone compared to the year before. The company has stopped paying its dividend and is looking at unloading its stake in the Boston Red Sox. Yet, even if it does this, the Times will continue to be forced into major cost cuts next year to avoid bankruptcy, if current advertising trends persist.
For some people, those difficult economic realities don't change their love of the country's biggest newspaper. Entertainment mogul David Geffen tried recently to buy the 19% stake in the NYT owned by Harbinger Capital. No deal was struck because Geffen was reportedly unwilling to pay above market price for the shares.
It's likely that moguls will continue to look at buying some of the NYT. Equally likely is that the Ochs-Sulzberger family will agree to sell part of the company to these interested parties because it will be much more palatable to them than the prospect of losing control of the company entirely through a bankruptcy filing.
There are several reasons why Harbinger Capital would want to sell its stake in the newspaper. Harbinger bought its stake with great fanfare in late 2007. At the time, NYT was one of several large established media companies that Harbinger owned, with an eye to pushing them to adopt certain changes that would positively impact their stock prices. They took large stakes in Media General(MEG Quote) and Cablevision(CVC Quote), making their views known immediately on what needed to be done.
Yet, the world has changed for Harbinger since then and the NYT investment certainly hasn't worked out well for them financially. They've been hit with redemptions like any big hedge fund, and they've turned their back on media, drastically reducing their Media General and Cablevision stakes.
Harbinger's founder, Phil Falcone, is now spending a lot of time looking at starting a new satellite phone service and might raise a dedicated fund for that purpose. Selling its stake in the Times would be another turning of the page for Harbinger.
The most likely suitors for Harbinger's stake will be moguls like Geffen. For some reason, moguls appear to be drawn to the newspaper industry. Sam Zell bought Tribune. Geffen and Eli Broad were interested in the Los Angeles Times. Broad and Ron Burkle sniffed around The Wall Street Journal, before another mogul, Rupert Murdoch, closed the deal with the Bancroft family.
Besides Geffen's interest in the Times, and Slim's existing ownership stake that could potentially grow over time, Bloomberg LP has apparently been looking at buying a stake, as have the Google(GOOG Quote) founders (although Scott Galloway, one of Harbinger's two representatives on the NYT board, denies there have been discussions with Google).
The Ochs-Sulzberger family has given every indication that it wants to hang on and ride this out. The dividend used to be a major source of income for some family members. There are also several younger members of the family working their way up in the organization with hopes of taking on key leadership roles in time.
Yet, time isn't really on the side of the family. The current economic environment likely will continue to pressure the company. The Times could start charging for online content or make cutbacks in the newsroom, but it's likely it will still be facing a cash crunch next year.
If it's a choice between cutting the NYT's journalistic standards and selling an equity stake to a mogul who views the ownership stake like a bauble to brag about to friends, I think the family will take the money.
Some moguls like trophy real estate assets; others like trophy newspaper assets. The New York Times is the biggest newspaper trophy in the world. My guess is that the Ochs-Sulzberger family will stay involved in the paper, but there will be two new moguls sitting on the board by this time next year.
Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.
Originally published in TheStreet.com
Wednesday, May 13, 2009
05/13/09 - 12:36 PM EDT