Bloomberg News

New York Times Has Enough Cash To Go Private

August 16, 2012

The New York Times Co Headquarters

Times Co., after five straight years of declining revenue and more than $300 million in net losses since 2005, slumped to its lowest valuation on record relative to earnings in June. The Photographer: Michael Nagle/Bloomberg

New York Times Co. (NYT:US), after losing $7 billion in market value since 1999 amid plummeting industry advertising sales, is better positioned than ever to go private as Mark Thompson takes the reins.

Thompson, who slashed more than $1.6 billion in expenses as director general of the private, nonprofit British Broadcasting Corp., was named chief executive officer this week of the publisher controlled by the Ochs-Sulzberger family. Times Co. would have about $840 million in cash (NYT:US) and short-term investments -- equal to 61 percent of its $1.37 billion market value -- if it succeeds in selling how-to website About.com. That would be more cash versus its market value than any U.S. publisher worth $200 million or more, according to data compiled by Bloomberg.

Times Co., after five straight years of declining revenue (NYT:US) and more than $300 million in net losses since 2005, slumped to its lowest valuation on record relative to earnings in June. The company has sold off regional newspapers and a stake in the Boston Red Sox, eliminated its dividend (NYT:US) and is working on lowering its pension liability. As Times Co. slims down, the family could buy back the business and remove it from public- market scrutiny, according to DeSilva & Phillips LLC.

“Now would be a good time for the company to go private,” said Reed Phillips, managing partner and co-founder of DeSilva & Phillips, a New York-based investment bank that focuses on the media industry. “The Times and other print newspapers are at an all-time low in valuations. They have been ‘cleaning up’ the business by selling off orphan assets for some time now.”

About.com Sale

“The company does not plan to go private and is not for sale,” said Robert Christie, a spokesman for Times Co.

Today, shares of Times Co. increased 1.8 percent to $9.39, the highest closing price since April 2011. The stock rose for a 10th straight day, the longest stretch of gains since December 2000.

Times Co. said last week that it was in talks to unload About.com, which has struggled to attract users and ad dollars. The company is trying to sell the Web property to St. Louis- based Answers.com for $270 million, a person with knowledge of the deal said last week. While the company purchased About.com in 2005 for $410 million, the unit posted an operating loss (NYT:US) last quarter as the company wrote down some of the value of the business. Answers.com didn’t respond to requests for comment.

If the sale is successful, Times Co.’s cash holdings will reach $840 million, based on the company’s cash, equivalents and short-term investments at the end of the second quarter. That would give it more cash than debt, and an enterprise value (NYT:US) of about $1.31 billion, down from $1.58 billion as of yesterday’s close, data compiled by Bloomberg show.

Rising Cash

The mounting cash pile would make it easier for the company to go private, according to Phillips. Excess cash is typically tapped to help pay off the debt used to finance a going-private transaction.

Currently, the company’s $570 million in cash (NYT:US) represents about 42 percent of its market value. U.S. publishing companies with market capitalizations higher than $200 million have only 15 cents in cash for every dollar of market value, on average, data compiled by Bloomberg show.

Times Co. hasn’t been rewarded for being a public company. The stock is down 83 percent from its peak (NYT:US) in 2002, and the publisher’s enterprise value was only 3.58 times earnings before interest, taxes, depreciation and amortization on June 25, a record low, according to data compiled by Bloomberg. Analysts estimate (NYT:US) on average that the stock will fall to $8.90 within the next 12 months, down from $9.22 yesterday.

‘Going Private?’

The New York-based company has also suffered a 31 percent drop in revenue from a high of $3.37 billion in 2000 as advertisers pulled back from print publications across the industry. After posting net losses in three out of the last six years, the company sold the rest of its stake in Fenway Sports Group, owner of the Boston Red Sox, for $93 million this year and completed the sale of its regional newspaper division for $143 million.

“When you start to put all the pieces together -- the liquidation of the assets, paying down the debt, getting the pension liability under control, not buying back stock, not paying a dividend -- you have to wonder what’s going on,” Doug Arthur, an analyst with Evercore Partners Inc. in New York, said in an interview. “The question is, are they going private?”

Family’s Dividend

The company stopped paying a dividend after 2008 that had furnished the Ochs-Sulzberger family with more than $20 million annually. Some family members have expressed concern about the loss of the quarterly payment, according to two people with direct knowledge of the matter, who asked not to be named because the family discussions have been private. Going private would help the family reassert control of Times Co.’s cash, without having to answer to public investors.

“The best buyer would be the family itself,” said Phillips of DeSilva & Phillips. The other options would be for someone close to the family to partner with them to take it private, or for the company to buy back its own stock while remaining public, he said.

Either way, the company has been considering restarting the stock dividend after the new CEO is in place, two other people with knowledge of the situation said.

“The company’s positioned to go to a foundation structure by going private,” said Arthur of Evercore. “I think the family would be happy going private for cash and reaping the benefits.”

Trust’s Control

Arthur Sulzberger Jr., chairman of the company and publisher of its flagship newspaper, has also served as interim CEO since pushing out Janet Robinson in December. He has championed an accelerated shift toward the Internet. Times Co.’s so-called digital paywall, enacted last year, forces online readers to buy a subscription after reading a limited number of free articles. The effort has drawn over half a million subscribers in one year.

The family trust traditionally elects two-thirds of the Times Co. board through its ownership of 90 percent of the Class B shares, while the remaining one-third of directors are elected by holders of the publicly traded Class A shares. The trust is charged with preserving editorial independence.

Any change of control would have to be approved by at least six of the eight members of the family trust, which votes its stock as one block. The trust’s agreement requires it to vote against a merger or asset sale that would take control away from the trustees “unless they determine that the primary objective of the trust can be achieved better by the implementation of such transaction,” according to a regulatory filing.

CEO Thompson

The trust and family descendants owned about 15 percent of the company’s total equity as of Feb. 27, according to the filing. Class A shareholders are entitled to vote on “certain material acquisitions,” and the two classes of stock have equal voting rights outside of board elections.

Still, being publicly traded forces Times Co. to disclose more information and undergo a higher level of scrutiny -- something that may present challenges as management tries to transform the 161-year-old publisher into an Internet company.

Thompson, 55, will take over as CEO in November and report to Sulzberger. As the head of the BBC, Thompson primarily managed costs since almost all of the commercial-free network’s revenues were handled by the U.K. government through fees paid by television viewers. As of October, the BBC had undergone cost cuts of more than 1 billion pounds ($1.6 billion) since 2008.

The company still faces contentious union negotiations with the New York Newspaper Guild, as Times Co. works to lower its future pension payments. The Times’ pension is underfunded by about $500 million, though the company has four to five years to pay into the fund. A bill passed by Congress also alleviates the company’s pension burden by giving it more flexibility in the timing of payments.

Carlos Slim

Times Co. has reduced its debt to $776 million from $1.28 billion in the first quarter of 2009. During that quarter, it resorted to accepting a $250 million loan from Mexican billionaire Carlos Slim to help refinance its existing debt burden. The company repaid the loan a year ago, 3 1/2 years ahead of schedule.

Slim, who still owned a 17 percent stake in Times Co. as of the end of 2011, didn’t return phone messages seeking comment through spokesman Arturo Elias.

Times Co.’s remaining debt (NYT:US) still may make it difficult to take the company private, Edward Atorino, media analyst with Benchmark Co. in New York, said in an interview. Both Moody’s Investors Service and Standard & Poor’s have given the company a credit rating (NYT:US) that’s four levels below investment grade.

Rising Swaps

“It’s a big stretch to go private,” Atorino said. “They still have a lot of debt and the business is going downhill -- who would finance it?”

The cost to protect debt issued by Times Co. from losses for five years surged today by the most since October. Credit- default swaps on the company’s debt added 30.9 basis points to 282.4 basis points as of 10:30 a.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

That’s the biggest jump since the contracts added 49 basis points on Oct. 4, the data show.

Credit-default swaps, which typically fall as investor confidence improves and rise as it deteriorates, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Newspaper Buyouts

The swaps often rise if a company is the potential target of a leveraged buyout because the debt added to its balance sheet to fund the transaction erodes its credit quality and could lead to ratings downgrades.

Leveraged buyouts of newspaper owners haven’t always proceeded as planned. Real-estate billionaire Sam Zell led an $8.3 billion buyout of Tribune Co. in 2007. The company filed for bankruptcy a year later.

The Ochs-Sulzberger family is unlikely to sell the company outright, according to two people with direct knowledge of their thinking.

Still, a strategic buyer may be willing to pay as much as $1.8 billion for Times Co., according to Evercore’s Arthur, about a 32 percent premium to yesterday’s closing price. A multiple of five or six times estimated 2012 Ebitda is “reasonable, particularly given the premium one would expect for a renowned, global franchise,” he said. Times Co. may bring in about $300 million in Ebitda this year after selling About.com, according to data and analysts’ estimates (NYT:US) compiled by Bloomberg.

Real Estate

Leo Kulp, an analyst with Citigroup Inc. in New York, said Times Co. can also squeeze more money from its headquarters in Manhattan to help fund a buyout.

After spending as much as $616 million to help construct the Renzo Piano-designed tower, Times Co. sold back a portion of the floors it occupies in 2009 to help finance debt. The leaseback arrangement allows the company to rent the space with the option to repurchase its share of the building in 2019.

The option on the 21 floors has almost doubled in value to $495 million, Kulp estimates. Combined with the seven floors already owned, Times Co. could sell the space and the option for almost $600 million, according to Kulp.

“The deal was done in 2009, and of course the real estate is worth more now,” he said. “It’s really an asset. If they monetized that right now, they could go private with cash on hand and then go rent somewhere. There’s some real value on the balance sheet if you look closely.”

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net; Nick Turner at nturner7@bloomberg.net.


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