As the slug-out between New York Times Co. management and activist shareholders
plays out, I noticed that three analysts I follow have placed or reaffirmed "sell" recommendations on the stock.
Typically that means an analyst doesn't think much of a company's prospects or sees management as bunglers. In this instance, not exactly.
At a simple level, a "sell" reflects that there has been a modest run-up in NYT share prices since the Harbinger/Firebrand group began buying up stock and agitating for seats on the board. Even if they get four seats (far from a sure thing), the dissidents will not have broken the Ochs/Sulzberger family's iron grip on voting control of the company. Family shareholders occupy nine of the 13 director's spots and can only sell their Class B shares, with special voting privileges, to other family members.
As the dissidents push for restructuring -- selling regional newspapers in favor of buying electronic ventures -- they will have a hard time getting their way. If they fail, Merrrill Lynch's Karl Choi wrote in a Feb. 22 note, the recent stock appreciation goes away. So it makes sense for investors to pocket the short-term gain.
Peter Appert of Goldman Sachs goes a step further in another Feb. 22 report. Selling newspaper properties at the current depressed values and taking those proceeds to buy expensive Internet ventures at three times the multiple yields a company that would be valued at about $16 a share. That is less than the current trading price of $19 and way less than the $50 a share the group says the New York Times Co. could be worth if half of its revenues soon were to come from digital ventures.
An interesting aside in Appert's report is that he estimates that the Times Co.'s New England papers --
The Boston Globe and
Telegram & Gazette of
Worchester, Mass. --- are earning a modest 6 percent operating margin. But the regional group -- whose biggest papers are in Sarasota, Fla., and Santa Rosa, Calif. -- still operates at an eye-popping 28 percent
EBiTDA margin. This suggests that even with revenues off more than 10 percent last year, NYT Co. is milking the group for profits and sending the money back to the big city.
Appert also notes that the Times Co. is becoming more electronic all the time and may eventually sell some of the scattered newspaper properties to focus on The New York Times franchise. But financially, he writes, doing that in gradual steps over three to five years makes more sense than the "radical near-term remake" Harbinger is suggesting.
Paul Ginocchio of Deutsche Bank, who
changed his rating on the company from hold to sell, also agrees that a bet on Harbinger's success is ill-placed. He added that national advertising, which buoyed
The New York Times late last year, is likely to soften considerably in a recession.
The Harbinger group is nothing if not self-confident. In just a few month they have raised their stake in the company from 5 to 19 percent. But except for the remote chance that they swing some family members to the faster-is-better strategy, I'm not sure they will do any better this round than in a
previous foray buying Gateway computer stock on the way down.
