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Tuesday, August 22, 2006

New York Times: Will The Owners Sack The Prince?

Stocks: (NYT)(GCI)(TRB)(DJ)(MNI)

The New York Times Company is controlled by the descendants of the company's founder Adolph S. Ochs. Eight people control that trust and one of them is the current publisher of the New York Times, Arthur Sulzberger, Jr. The shares in the trust have the power to elect 70% of the company's board of directors. Pretty nifty.

The trust was established to make sure that The New York Times will remain editorially independent. It shares that structure, for similar reasons, with other media companies like the Washington Post. Several decades ago, this was the rule and not the exception with large newspaper companies.

But, times have changed. Famous family-controlled companies have been sold off. The Times Mirror company, controlled by the Chandler family, was sold to The Tribune Company. The Chandlers are now unhappy with that deal because the Tribune's stock is so low. There is talk of auctioning off the pieces of the Tribune to get the Chandlers and other shareholders some walking around money.

At Dow Jones, the publisher of the Wall Street Journal, the family of the founders also controls the board. Recently it appears that they became impatient with management and a poor stock price and moved out long-time CEO Peter Kann, along with his wife who also held high rank in the company.

All of this brings us back to The New York Times Company. Several institutions, led by a division of Morgan Stanley, recently withheld their votes for election of the company's directors. They are sick of the low stock price.

Wall Street's short community is also making a heavy bet against NYT. Short interest in the company rose 13% in August going up to 15.8 million shares from 13.9 million in July. That number is very high. According to ShortSqueeze, the company's short interest is now almost 12% of the float. It would take 12.6 trading days to cover this short position based on average daily volume. At The Tribune Company the days to cover are 6.6. At Gannett, 5.3 days. And, at McClatchy, 4.2 days.

The time will come, or perhaps it has, when Mr. Sulzberger, Jr's tenure at the helm of the company will be questioned by his relatives. In 2005, according to the company's proxy, he made $1.6 million in based salary and bonus. The other members of his family might wonder where their $1.6 million a year is.

The reason that this is so nettlesome is that the stock in NYT has dropped from nearly $50 in early 2004 to $21.70. The 52-week low for the company is $21.54.

The Class B shares held by the family do not trade the way that the Class A shares listed on the NYSE do, but the drop in overall value speaks for itself.

As the generations between a founders and his descendants grow, often inheritance becomes more important than founding values.

Another reason for impatience is the company's financial performance. While NYT's stock is off due to a seachange in media which is moving readers from paper products to the internet, the Times has been slow to cut costs, has probably not cut deeply enough, and has decided to build an expensive new headquarters.

Since most Wall St analysts think it will be at least two years before online versions of newspapers begin to replace the attrition of print advertising and subscription revenue, Mr. Sulzberger is in a bind.

No one should be surprised if his family gets restless.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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