Friday, December 01, 2006

Hank vs. Pinch?

The New York Post reported the other day that Hank Greenberg has been buying up shares in the New York Times Company:
Billionaire insurance titan Maurice "Hank" Greenberg has begun buying huge blocks of New York Times stock to break the Sulzberger family's stranglehold on the media empire, The Post has learned.
Sources confirmed that the famously combative Greenberg has been buying hundreds of thousands of Times shares, but did not disclose the exact number or the size of the stake he wants to own. Greenberg has both the assets - Forbes estimated his net worth at $3.2 billion - and the temperament to jump into a fight over the future of the stumbling newspaper giant.
A major stock position would put Greenberg in league with already angry Times' shareholders, such as Morgan Stanley Investment Management, to battle the board over whether the founding Ochs-Sulzberger family should hold a powerful class of stock that accounts for a majority of the voting power at the company.
The ownership structure of the Times Co. is such that the Ochs-Sulzberger family owns the majority of the voting rights but only about 20% of the share capital (giving them the right to elect nine of the company's 13 directors). Therefore it seem to be impossible for Greenberg to obtain control of the company without the consent of the Sulzbergers. But he undoubtedly knows what he's doing, and I don't think he'd be pouring millions into a venture that did not have some return, either financial or in influence.
There has long been speculation that the Sulzbergers would like to take the company private, and although this has increased with Greenberg's reported shenanigans, it seems to be an unlikely prospect. The Boston Herald reported in July (free version here):
The famous Sulzberger dynasty is quietly tightening its financial grip on the New York Times and the Boston Globe, a new analysis shows. And it's using shareholders' cash, instead of its own, to do it.
A Herald examination of Times financial filings shows that since Arthur "Pinch" Sulzberger Jr. took over as chairman in 1997, The New York Times Co. has bought up almost one-third of the stock held by outsiders. Meanwhile the Sulzbergers themselves have "basically held their shares," says company spokeswoman Catherine Mathis. And so, without spending a dime, the storied newspaper dynasty has raised its stake to about 20 percent.
In other words, pretty much every penny of profit generated by the New York Times, the Boston Globe and other company operations under Pinch has been spent... gradually returning the company to Sulzberger hands.
Meanwhile the program has been a disaster for the outside investors who still own 80 percent of the company. Pinch and his team blew much of the cash buying stock at the peak of the market. Based on current prices, they overpaid by $1.2 billion.
But don't expect a leveraged buyout too soon. Brian Shipman, analyst at UBS, said a deal "is certainly a possibility" at some point. But, he thinks, not at current levels. He thinks New York Times stock would have to fall to about $17 before it started to look attractive to the kind of private equity backers that Pinch would need. Other analysts suggested $15.
Meanwhile, this week's BusinessWeek explains:
Still, the Times faces increasingly withering scrutiny. Investors holding more than a quarter of its common shares withheld votes for directors at the annual meeting in April. At the same time, Morgan Stanley Investment Management, which owns 7.6% of the company's common shares, filed documents with the Securities & Exchange Commission requesting that the dual share structure, never popular with governance hawks, be put to a shareholder vote. The firm also wants the position of chairman and publisher, held by Sulzberger, to be separated. The Times Co. is especially vulnerable because its big-city newspapers are facing major threats from the Web. Since January, the publisher's shares are down 14%, to about 24.50.
I have little sympathy for Arthur Sulzberger Jr., and I think his tenure has seen the Times sink to new lows in various respects. Not only have there been several journalistic scandals, the newspaper has increasingly blurred the line between the editorial page and what should in theory be impartial news coverage. I think only the most entrenched East Coast liberal-lefty would fail to recognize that the Times' standards have been in woeful decline. It has come to the point that when I see a story in the paper, I take it with the same sizable pinch of salt that I do if I had seen it in one of the more low-brow British tabloids (as opposed to the Washington Post or the Wall Street Journal, which are as liberal as any in their reporting, but which I think can be trusted more): there have simply been too many instances in which the Times has demonstrated its inability to be impartial.
It'll be fun to see if Hank Greenberg knows something we don't, and if he plans to do anything exciting – it could make for interesting reading in the coming months!

Post Scriptum:
Some more kvetching about the New York Times: here, here and here. Also see an excellent evisceration by Bruce Bartlett from Commentary magazine (July/August 2005): Class Struggle in America? (requires subs.; free version here).

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