Last summer in the Turnaround Newsletter, George Putnam III called out
Putnam, a hedge fund manager and descendant of the founder of Putnam Investments, reasoned that The New York Times "has perhaps the best brand in the newspaper business. Unfortunately, the newspaper business is a lousy place to be these days.
Nonetheless, the company may be able to take advantage of its brand to profit in the digital world. Moreover, activists with large positions will be pressuring the controlling family to unlock more value for shareholders."
Since Putnam's call, the Times Co.
If Slim sticks with the Times Co. and eventually converts all of his investment into stock, he'll own 17% of the company, making him the largest shareholder outside of the controlling Sulzberger family, which owns 19%.
Still, the Sulzberger's have super-voting shares that have insulated them from any serious shareholder activism though many hedge funds and even
Super-voting shares are an old media company tradition--a way for media families to access the public markets without compromising editorial control of its products to the sometimes vested interests who can become owners overnight. Such shares were the main, though ultimately not insurmountable obstacle to last year's takeover of Dow Jones by
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As a creditor to the company, Slim might have a little more sway than he would have as just a shareholder. The Times has to pay off more than $1 billion in debt over the next few years and the covenants around such extensive borrowings (the company's market cap is less than $700 million) can be vexing and creditors can make demands after the slightest slip up.
The Forbes.com Investor Team sees Slim's investment as "Warren Buffett-esque." Attorney Kord Lagemann says he only buys the paper for the crossword these days. Mark Lowlicht of Further Lane asset management concurs, saying that he prefers to get his news online and from multiple publications.
Ronald Sloan, lead portfolio manager of the AIM Charter Fund, among others, believes Slim's investment saved the Sulzberger super-majority. "I think had they gone to the market in some fashion, without this kind of private offering, that might have been diluted," Sloan said.
No one on the Investor Team is recommending the Times Co. at the moment. Sloan is especially worried that though the business generates cash, it's all going to debt service. He's happier with media holdings like
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The Future Of The Times
Lagemann: This used to be called death spiral financing. I mean, that's, I think, clearly what it is. It's telling me that there's no value to The Boston Globe or even my beloved Red Sox anymore. There's no value to a big new building that French people climbed in Manhattan anymore. And paying 14% on these terms is not a good sign. Yesterday, by the way, was the first time in my memory, and I'm 67 years old, that the Times came without a crossword. And then I read about this. This doesn't look good for the Times.
Lowlicht: You're referring to the paper, not the actual times itself where we are.
Lagemann: I'm referring to the newspaper, yes. If it wasn't for the crossword, I wouldn't spend the buck and a half for a paper every day.
Lowlicht: You also have to look and, in my opinion, I think, not only the value has been lost to the Times, and this is not an attack on the Times, you have to look at ignoring the ability to get information over the Internet. I have found in the past 10 years all publications have become extremely partisan, based on whoever their backers are and who they believe in.
So you're not--you're no longer getting the reporting of the news. In my opinion, you have to read every paper you get with a grain of salt. And you sometimes read, you know, what are considered to be reputable papers and you scratch your head and you're like, wait a minute, this is not unbiased reporting.
And it's not just the Times. I think it's across the board. So for me reading the Times is not enough. I have to read 20 papers. And I go online and see--kind of find, you know, the middle ground between what one's reporting and another's reporting on the same topic. And the middle ground is probably the unbiased view.
Lagemann: Well, you're right. It would be nice to have an actual newspaper that you could go to for an unbiased view.
Lowlicht: It's unbelievable. I mean, it's shocking.
Sloan: Well, my view on the Times in particular is [that it's] running out of options. You know, they have opportunity; Carlos Slim's warrants and the cause of this debt, none of that influences the Sulzberger's voting interest. And I think had they gone to the market in some fashion, without this kind of private offering, that might have been diluted.
And so, you know, not every source of capital was available to them. That's one thing. And, of course, I don't know what the right rate of interest is. I agree with Marc and Kord in the sense that the newspaper is a dead business right now. Everyone has said that and everyone knows that. And so I think that outside the U.S., however, you know, there is a cache, probably, still, to the New York Times just as a publication.
Carlos Slim, he made his money in telecom. And he's got an enormous cash pile, which we were talking about earlier. And this was a Warren Buffett-esque move.
Lowlicht: I agree with that. It's a very Warren Buffett-esque investment.
Sloan: It's not very different from Buffett's foray into GE or Goldman. And they're ostensibly stronger long-term operations than the Times. Although the Times does still generate lots of cash. But not all of it for free anymore. And that's the problem. So they're burning cash as opposed to having a lot of it be free.
We have a large holding, really, only one large holding in any kind of media and that's Comcast. Which is not really so much about content as it is about delivery. And we just think cable businesses, in general, for three decades generate lots of cash and none of it was free.
They were "building out, building out, building out and acquiring." Now the cash is free because the country's built out. And so we like the kind of nesting or people staying at home and upgrading. And the kind of triple play and quadruple play options that are going on in communications. And packaging and bundling all of these things into a single package.
These are all plays on something we were talking with
We got into it maybe a year and a half ago. The stock was around $20 or so. And you know, it's not there anymore. I mean, anything you bought since before yesterday was too high a price. You know, we've lost some money in it, there's no doubt. But nonetheless we like it very much.
Forbes: OK. So back to the Times for a second. You were saying they have a lot of cash, but it's not free cash, Ron. What could they do to free up the cash that now they have tied it to, I guess, whatever projects they have?
Sloan: Well, what's happening now is they're burning cash in the sense that they're not making any money. Ad rates are down so substantially. So that it's operating cash and then there's, you know, free cash. And free cash has dwindled to nothing because they're basically burning all the cash that these businesses used to generate in great gobs.
The financial characteristics and profile a newspaper industry have changed dramatically in the last five years. It's just 180 degrees. And that's why Buffett had that huge ownership in The Washington Post all these years. It had that one kind of characteristic decades ago when he was investing in it. And he has been publicly saying, and I would agree with it, that I wouldn't buy another one in today's world. Even though he bought, I guess, a Buffalo newspaper about a decade ago. But these are changed businesses. And the old models no longer work.