This is a bad time to be head of a publicly held media company, and it's an especially bad time to be head of the publicly held New York Times Co. The stock has been staggering for the last five years. Morgan Stanley is pushing a shareholder resolution aimed at ending the company's dual-class stock structure, which allows the Sulzberger family to control the Times despite owning only a small portion of the stock. (According to the most recent proxy, Chairman Arthur Sulzberger Jr. owns about 5.3 percent of the company's stock.) Sulzberger has been derided everywhere for weak leadership, and the company has been struggling to maintain editorial quality while hitting earnings targets. (Quality often loses. This week, the Boston Globe, which is owned by the Times, announced it would shutter its remaining foreign bureaus.)
But if it's a bad time to run a publicly held media company, perhaps it's a good time to run a privately held one. Should the Times take itself private? And how could it do so?
Many newspaper executives have concluded recently that newspapers are better off being owned by private investors. Last May, advertising executive Brian Tierney and a group of investors paid $562 million for the Philadelphia Inquirer. Late last year, private-equity firm Avista Partners paid $530 million to buy the Minneapolis Star Tribune. And the Tribune Co. is currently weighing several bids.
In an interview with the American Journalism Review, Sulzberger said he has no intention of changing the dual-class ownership structure and no interest in going private. But what if the Sulzberger family, which clearly relishes owning the New York Times and regards the management of the paper as something of a public trust, could take the company private itself, without the assistance of other buyers? It could run the Times as it sees fit, without constant interference and second-guessing.
Is it doable? Definitely. The New York Times Co. is an excellent target for a management-led buyout. (Warning: The following thought experiment relies on some admittedly crude numbers and assumptions.)
At today's price, the Times has a market capitalization of $3.3 billion. A buyer paying a 15 percent premium for control would need to pay $3.8 billion for all the outstanding stock. If the Sulzberger family and current executives and directors contribute the 8 percent of company stock they already own, they'd need to come up with only $3.5 billion. They'd also have to assume the company's existing $1.3 billion in debt, on which the company pays about $50 million per year in interest. Add up the stock and debt, and the total "cost" would be about $4.8 billion, including the assumption of existing debt.
A reasonably aggressive management-led buyout offer might consist of 25 percent cash and 75 percent debt. So the buyers would need to come up with $1.2 billion in cash and borrow $2.3 billion more.
The most recent quarterly report shows the company has about $40 million in cash. But the Times is in the process of selling radio station WQEW for $40 million, and this month it agreed to sell a group of television stations to Oak Hill Partners for $575 million. When those deals close, the company will have about $650 million in cash.
Last fall, a group of Boston-based businesspeople led by former General Electric CEO Jack Welch reportedly offered between $550 million and $600 million for the Boston Globe. The Times rejected the offer. But let's say the Times reconsiders its ill-fated foray into the New England media market and decides to sell the Globe and its other Boston-area media holdings. Welch & Co. would probably pay $600 million. The Times could also sell its 17 percent interest in New England Sports Ventures, the company that owns the Boston Red Sox and most of the sports channel NESN. According to Forbes, a 17 percent share in the Red Sox alone is worth $105 million. So auctioning its trophy Boston assets could easily net the Times $700 million and a big tax loss on the sale of the Globe.
The company would thus have $1.35 billion in cash, enough for a down payment and a $150 million cushion.