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Monday, November 06, 2006

Institutions Lay Seige To The New York Time Company: Why The Company Should Be Sold

Stocks: (NYT)(DJ)

Every reputable newspaper and news agency ran a story this past weekend on how rapid institutions are attacking The New York Times Company over its financial and stock performance. Morgan Stanley has been leading the charge.

The New York Times itself ran a story saying that Morgan Stanley wants the company to eliminate the two classes of shares that it has. The arrangement leaves the Sulzberger family with enough voting shares to pick most of the company’s board. Of course, one of the Sulzbergers is Chairman of the company.

The best response that the company can come up with is that the Sulzbergers themselves would have to alter the arrangement. It is not in the power of the board. It is an answer so obvious that it is almost coy. “We can’t do it, but our best friends can”.

The pages of the Times had an equally interesting article recently about why private equity likes the newspaper business. Public shareholders obviously don’t since most newspaper companies, including The New York Times Company, trade at 52-week lows. But, the cash flow at many large newspaper companies is still very good. Referring to an article in British egg-head magazine The Economist, the Times writer points out that newspaper cash flow is predictable, even if it is slipping. That makes borrowing money to buy a newspaper company attractive. If the math works. Morgan Stanley obviously thinks it could work for the Times. The best way to get full value from the company may be to auction if off in pieces the way that the Knight-Ridder board did its assets.

The Wall Street Journal points out, “At companies with dual-share structures, managers can be cocooned from the disciplines of the market.” Of course, The Wall Street Journal is owned by Dow Jones, which has a similar shareholder set-up.

The most compelling argument against the Sulzbergers is that they don’t own the company. They just control it. A novel, but successful shareholder suit may make the case that in their dual role as trustees of their voting shares and as fiduciaries for the entire shareholder base, the shareholders must be first in line.

Let the courts decide.

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

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