The New York Times, Still in Play

Alan Mutter has a good post, echoing something I wrote a few months ago, suggesting that investor pressure on The New York Times Co. is going to wind up with the company deciding to go private.

Jon Fine, of BusinessWeek, disagrees. Fine, among others, argues that the Times Co. doesn't have to do anything to react to Wall Street pressure. Its two-tiered stock setup protects it, this argument goes, because the Sulzberger family controls all of the company's voting stock. This theoretically insulates it from the kind of investor pressure that led to the sale of Knight Ridder and Tribune Co. over the past year.

Not so. While the two-tiered stock protects against an outside takeover, it doesn't protect against internal dissent among the Sulzbergers that can lead to major changes at the company. Wall Street's complaints about the company's results and Arthur Sulzberger Jr.'s management are heard loud and clear by family members, and schisms no doubt are developing as these issues are debated within the family.

Family-owned companies are a tinderbox for this sort of thing--later generations of ownership, who see only dividend income spread among increasing numbers of siblings and cousins, start asking hard questions about their inheritance. These later generations don't usually have the emotional ties to the core business; they just want what's due to them.

You don't have to look very far to find examples of how this family dynamic can tear companies apart: The newspaper industry, with its long history of family ownership, is rife with such stories. The San Francisco Chronicle, Chicago Sun-Times and Los Angeles Times were sold because of similar family upheaval over the past few years. (Ironically, the Chandler family's sale of the LA Times wound up triggering the recent sale of Tribune Co.). Two more notorious examples: The Binghams of Louisville and the Cowleses of Des Moines, whose family divisions wound up giving Gannett two of its flagship papers.

The New York Times is not going to wind up in the hands of Gannett. But it's highly likely that some sort of major change will take place in the company's corporate structure as a result of the current Wall Street pressure. That could mean taking the company private, as Mutter suggests; a management change; a sale of assets (already underway, in fact); or some combination of all three. Bet on it. (Even BusinessWeek's Fine has written that the company could possibly go private.)

As I said in November, The Times Co., classically, is "in play," in Wall Street parlance. Any smart corporate mergers and acquisitions expert or investment banker will tell you that where there's smoke, there's fire. Status quo is not an option. One way or another, it will be a very different company in a few months. It's inevitable and inexorable when pressure like this builds. And the history of the newspaper industry proves it.

Update: Former-Timesman-turned-investment-banker Steven Rattner says there's "no possibility" that the Times Co. will change its two-tier ownership structure. That seems to rule out the going-private scenario. But it doesn't mean that the Times Co. won't make other moves (which Rattner seems to signal in his comments) to mollify Wall Street. The company's annual shareholders' meeting is in two weeks. That should be an interesting show.

Update II: Former General Electric CEO Jack Welch, who was attempting to purchase the Boston Globe from the Times Co. last fall, now says it is clear to him that the Times has "no interest" in selling the Globe.

Comments

[Dan Mitchell]

Here's a note I sent to Romenesko this morning, which he has apparently decided not to run.

As unlikely as it seems, I suppose there may be a "schism" developing in the Sulzberger family over the New York Times Company's stock price. I highly doubt it, but I have no way of knowing. And neither does Mark Potts.

You'll notice, though, that unlike him, I haven't written an authoritative-sounding blog post about it, and had it linked from Romenesko for all to read.

Mr. Potts' post is not based on anything other than stuff he made up, apparently out of thin air. Like a similar recent post by Alan Mutter, there's no reporting there, and not even anything outside his own misguided internal musings to back up what he is writing.

Similarly, Mr. Mutter's post of a few days ago was based on a whole series of false premises: chiefly, that stockholders have some kind of "legal" options to rid the company of its dual-class stock structure. He was called on that by commenters, and yanked the reference. But he further asserted that the same kinds of pressures that led to the buyouts of Knight Ridder and Tribune could be brought to bear on NYT, but he didn't explain how, exactly, given the share structure, that would work. He essentially compared those companies to NYT as if they were equivalent. They are not.

Mr. Potts went even further with his mystical prescience, writing that "it's highly likely that some sort of major change will take place in the company's corporate structure as a result of the current Wall Street pressure."

Highly likely based on.... what, exactly? Mr. Potts doesn't say.

From that made-up premise, he concluded that this "could mean taking the company private, as Mutter suggests; a management change; a sale of assets (already underway, in fact); or some combination of all three. Bet on it."

Bet on it! The best Mr. Potts could do to back up his assertions was to write that "Any smart corporate mergers and acquisitions expert or investment banker will tell you that where there's smoke, there's fire." Note that he apparently didn't actually *talk to* any of these smart M&A experts or bankers about this particular case. He just assumed that this is what they would say.

And he didn't stop there. He even put a timeline on how long it will take before the NYT is "a very different company": a few months. Why not next week, or a year from now? We don't know. But apparently it's "inevitable and inexorable when pressure like this builds."

The Wall Street Journal recently examined the pressures facing the company. What Journal reporter Sarah Ellison did was, she talked to people who are closely involved with the company, with its critics, and with outside observers. In the news business, this is called "reporting." When one financial advisor suggested that the company consider going private, the board quickly dismissed the idea, according to Ms. Ellison's account, opting instead to sell off a few assets. Ms. Ellison's sources told her that is appears highly unlikely that the company will go private, and even less likely that it will end the dual-class structure.

Ms. Ellison's story appeared on March 21. What has happened since then to change the situation? Not much more than the random, wholly unfounded speculations of a couple of bloggers.

Some bloggers back up what they write, or at least know what they are talking about. Others don't. We need to recognize the difference, and pay attention only to those who do.

Now, it may well be that the directors of NYT are indeed reaching their wits' end, and will do a rather abrupt and startling turnabout and force an end to the dual-class structure, demand an LBO, or take some other drastic action. And it may be true that a "schism" has developed in the family. It seems unlikely, but it's possible. Yet there is simply no indication that this is the case. Stating otherwise as if it were fact is the height of irresponsibility.

Disclosure: I do regular freelance work for the Times, but of course I am speaking only for myself, and I would have written this note even if I worked for a competing newspaper.

[Mark Potts]

Thanks for your comment, Dan. You're entitled to your opinion, just as I am entitled to mine, and my blog is an expression of my opinion, based on my experience reporting corporate takeovers, previous examples in the newspaper industry, and widely reported accounts of how the Wall Street pressure is affecting internal discussions and decisions at the Times Co. and in the Sulzberger family. It will be interesting to see what happens.

[Dan Mitchell]

Well, "we're both entitled to our opinions" only goes so far -- and as usual, that's not very far at all. Your opinions are still backed up by nothing, and your reportorial experience doesn't really change that. You make a bunch of hard assertions, and even predictions, without providing anything at all to substantiate them. Even the previous examples of newspaper companies and family strife don't measure up, since that's apparently all you have. By itself, all it is, is "it's happened this way before, so it will surely happen again in this case." But the cases are very different, and unless you have some particular knowledge conversations taking place within the Sulzberger family, or a source that knows what's happening, those other cases remain irrelevant.

I'd be interested to see examples of the following, and how those examples back up your assertions:

>widely reported accounts of how the Wall Street pressure is affecting internal discussions and decisions at the Times Co. and in the Sulzberger family.

[Dan Mitchell]

And here we are, two years later....