Ink-Stained Opportunity by Andrew Bary
Highlighted companies: The New York Times Co. (NYT), Dow Jones & Company Inc. (DJ), Gannett Co. Inc. (GCI), McClatchy Co. (MNI)
Summary: Last week Morgan Stanley Investment Management (a 7.6% owner) challenged the New York Times Co. over its dual-share-class ownership, which enables the Ochs-Sulzberger family to control the board with its Class B stock despite its paltry 1% economic interest (the family all told owns 20%). The Times counters that the dual-class structure was in place when the Times IPOed in 1969, and has never been a secret to investors. Barron's surmises that the challenge, at least, will force Times management to improve its presently weak performance: (1) At $24/share, its stock is half its 2002 peak, and at par with 1987 prices. (2) Weak advertising revenue has profits falling (Q3 2006 $0.16/share vs. $0.21 in 2005). (3) Its 1993 $1 billion Boston Globe purchase failed to pan out; Globe ad revenues have plummeted and it's become a buyout candidate (rumors are GE CEO Jack Welch for $600m). (4) $3b share buybacks over the past decade at an average price of $37. (5) Its management is seen by investors as aloof; just 1 out of 15 Street analysts give it a Buy. But the Street may be wrong: (1) Barron's analysis suggests a net-worth of $35/share. (2) There have been rumors of a family buyout (a takeover is unlikely due to the Class B shares). (3) Its margins are estimated at 10-15%, half of other prominent media outlets. There is room to improve, even while maintaining its hailed gold-standard reputation. (4) Moving to a fancy Manhattan tower has put it in control of $850m of hot real-estate. (5) Once criticized for overpaying ($410m) for About.com, the website is now considered to be worth considerably more. Barron's conclusion: "Among newspaper publishers, few have better properties and more opportunity to boost margins. A takeover, albeit unlikely, would be the icing on the cake."
Quick comment: Commentary: Scary Times for Newspapers: Sharpest Circulation Drop in 15 Years • Two weeks ago, Barron's Bill Alpert quoted Seligman's Paul Wick as being bearish on NYT • Declining Print Ad Revenues Take Toll on Newspaper Earnings • New York Times Weighed Down by Boston • New York Times Buyout Rumors Spark Heavy Wall Street Activity • Why Google Didn't Buy the New York Times • Real Value Remains In New York Times, But Is the Will There? • Cramer's Take on NYT. Earnings conference call transcript: Q3 2006