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AUGUST 6, 2007
Guarding The Gray Lady TO: Arthur Ochs Sulzberger Jr., Chairman, New York Times Co. FROM: NYTreader I see you told New York Times public editor Clark Hoyt, when he asked about the current dynamics in your family, and especially within your children's generation, that the center would hold. Which is great. The kind of relationship the Sulzbergers have with the Times is unique, these days—that almost aristocratic way of growing up steeped in the stewardship of a family institution. This bonded your brood deeply with the paper, unlike Dow Jones' (DJ ) Bancrofts. But consider what happens to your family if some stranger offers, oh, 35 a share for the company. (A 42% premium over late-July's stock price, that.) Because, thanks to News Corp. (NWS ) and Dow Jones, we now know someone could. Understand that no matter which road you take, the next few years will be awful. They will expose you, your family, and your paper to scrutiny and criticism as never before. There is no avoiding this. There is no "right" here; there is "bad" and "worse." (Just remain thankful that Rupert Murdoch called Dow Jones' Rich Zannino and not you.) You can stay today's course, toughing out investor dissent and market disgust and, eventually, land the Times on some currently unknown safer terrain. (That's the best-case scenario, by the way.) Or swallow hard, sell a bunch of properties, find a billionaire angel or two, make an offer for the 81% of the common shares your family does not own, and go private. THESE ARE THE OPTIONS. And I'm starting to think No. 2 is the safest. It won't be easy. (For one thing, a Times-centric private company means piling on debt precisely when the paper is most stressed.) If it were easy, you'd have done it by now. I know the two-tier stock structure at the Times is solid, that the Sulzbergers vote as a single bloc (unlike the Bancrofts), and that changes to the rules require six of eight trustees to agree. This means that the Times Co. doesn't have to do anything, except dig in and wait till you, or someone, finds the way to bridge the chasm between what newspapers were and what they will ultimately become. But that assumes you are absolutely confident that a crazy offer won't come in over the transom and create rifts in the family not visible right now. Granted, it's hard to see where this offer might come from, but who predicted an offer as rich as Murdoch's? The market cap of the Times Co. is just $3.3 billion. (This is part of the problem: There's so much money slopping around that you can reasonably append the word "just" to "$3.3 billion.") You have some ammo. Jack Welch et al are willing to buy The Boston Globe for around $600 million. Your regional papers could score over a billion. About.com, no matter what your dissident investor Hassan Elmasry says, could get twice the $410 million you paid for it, and more if a major player suddenly gets desperate to buy traffic. (Elmasry is ammo, too. The more he complains, the more he talks the stock price down—and the easier it gets to go private.) Now: 35 a share for the outstanding 81% is $4.1 billion. You can knock a billion-six off that with asset sales—maybe another billion if you sell About.com. There's that $1.4 billion in existing debt. There will be taxes, and you'll need to spread some cash around the family. But remember the institution: Yours remains the only one around that could, plausibly, enlist a few very rich dudes to accept less-than-stellar returns so their obits can say they saved The New York Times. Because things will not get better. Investors holding over half of nonfamily shares withheld votes for directors at April's annual meeting—and that was right after you'd boosted the hell out of the dividend. Right now you're coaching the most difficult game of your life, with analysts and investors screaming in your ear at every turn. The rules of the game require you to listen to all of them. Calling the plays in relative silence would be so much better. And you could be the guy who steered your family's cherished Times safely through its greatest crisis. For Jon Fine's blog on media and advertising, go to businessweek.com/innovate/FineOnMedia.  By Jon Fine
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