How Can The New York Times Be Worth So Little?

(page 2 of 2)

In the company's July 23 earnings release, Times CEO Janet Robinson blamed the sliding revenues and earnings on the economic slowdown as well as "secular forces playing out across the media industry." That release was followed a few hours later by a ratings downgrade, in which Standard & Poor's (which, like BusinessWeek, is owned by The McGraw-Hill Companies) warned it may cut its rating on Times Co. to junk. If this happens, the interest expense on Times's debt will rise.

Dividend Concerns

There are a multitude of reasons why selling off major parts of the company don't necessarily make sense. In his note, Huber speculates that the building and the Red Sox stake will appreciate in price, "so what would be the rush to sell these assets? To get a one-day or one-week pop in the stock price?" Selling so much of the assets would also whack the company's earnings before interest, taxes, depreciation, and amortization—EBITDA—a standard cash flow measure. This would endanger the juicy dividend that many in its controlling Sulzberger family live on, and scare off dividend-driven investors.

Currently, the company pays a fat dividend yield over 7%, which costs it $133 million annually. On Mar. 22, 2007, Times Co. jacked its quarterly dividend by a staggering 31%—looking to put a floor on its slumping stock price. "This dividend increase, which is another important step in creating value for our shareholders, puts our dividend yield and payout ratio significantly above that of the S&P 500 and others in our industry," said Arthur Sulzberger Jr., chairman of the company at the time. The stock has since been cut in half.

Cut the dividend, and you shore up finances. But then the stock would fall further.

That would place even more pressure on the Sulzberger family, which has supervoting shares that allow it to control the company. That control is exercised by eight family trustees. In order to change the terms of Times Co.'s governing trust, a supermajority of six trustees must agree. While there are no signs that will happen anytime soon, or ever, the Times has shown it's not wholly immune to outside pressures. In response to a sizable minority stake amassed earlier this year by Harbinger Capital Partners, it agreed to allot the hedge fund two board seats.

In case you're keeping track, the stock price has sunk 30% since then.

Yarow is a reporter for BusinessWeek. Fine is BusinessWeek's MediaCentric columnist and Fine On Media blogger .

Business Exchange

Discover, track, and share business topics across the Web.