Potential Tribune Break-Up Puts The New York Times On The Hot Seat

The Tribune Company has buckled under the pressure of its large shareholders and is hiring Merrill Lynch and Citi to look at “strategic alternatives”. Over the last two years, as the economics of the newspaper industry have gotten worse, Tribune’s stock has dropped from over $44 to under $30. Rumors of a potential break-up and auction of the company’s assets have driven the price up to $32 recently, but the shareholders want more. At this point, it appears that the old newspaper chain may go the way of Knight-Ridder.

The management at The New York Times has been under less overt pressure because the heirs of the founding family own shares that control the company’s board. And, one member of the family serves as the company’s chairman. But, the immunity may only last so long. The company’s shares traded just below $42 two years ago. They recently closed below $22.

Revenue growth at the company’s newspaper and broadcast groups are flat at best. The company’s small internet operation, About.com, is growing, but is a tiny part of total revenue. The internet operations of the newspapers, lead by nytimes.com, have not been able to take up the slack of falling advertising and subscription revenue at the print editions.

With its market cap down to $3.3 billion, about one time sales, The New York Times is running out of options. Buying a large internet property to offset dropping sales at its traditional media properties is probably out of the question. The company does not have enough chips to play in that game. Selling the broadcast properties or About.com might gain some time, but does not solve the company’s enduring problems.

In all likelihood, someone other than current management will have to do that.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.