Will Pinch Sulzberger Lose The New York Times?

Arthur Ochs Sulzberger Jr., known all but universally as "Pinch", may well be the last member of the Sulzberger/Ochs family to run the world-famous newspaper company.

He is trapped in a financial and competitive trap of his own making, and may have to rely on new money coming into the company at the price of relinquishing his managerial power.

Christopher Alleva already explained last week that the incredible shrinking equity resulting from the combination of high dividends and low profits is already raising questions about bondholder covenants requiring the company to maintain minimum balances in its equity account. And now, as he explained, the looming threat of new competition for its advertisers and readers is likely to intensify the financial pinch.

News Corporation, with 24 times the market capitalization of The New York Times, will soon be moving in on his advertisers and readers, and prices cuts for both groups would build market share for the rising News Corp properties and cut revenues for Sulzberger's outfit.

Pinch Sulzberger squandered over $800 million, now written off and deducted from the shareholders' equity account, on a disastrous acquisition of New England newspaper properties just before the bottom fell out of the newspaper market.

The company's published strategy writes grandly of "innovative products and services across media platforms." But words and deeds are not the same thing. The company's recent attempt to achieve synergy between its news content and the opportunities of cable television, The Discovery-Times Channel, has been a flop. The company liquidated its half interest in the venture at a loss, according to footnote 3 to its Consolidated Financial Statements for 2006.

If the business continues on its downward vector, and if those pesky bond covenants look like they will be violated, what will the grown-ups do? Formal default would place control in the hands of creditors. But while theoretically possible, that is unlikely to happen.

Let's face facts: the residual magic of the brand name "The New York Times" retains considerable value. There is actually quite a long list of potential White Knights who might be tempted to step in and buy out bondholders before some form of receivership is triggered.

But White Knights usually require something in return for their services, and that usually amounts to control, sooner or later. Investment banks are full of financial engineers capable of coming up with inventive securities designed to provide a satisfactory mix of risk and reward for all parties to a complex transaction. The family would lose control, maybe slowly, maybe all at once, and even if Pinch were allowed to keep his office in a face-saving gesture, the era of Sulzberger control would be over.

The Sulzberger/Ochs family

I have little doubt that most members of the Sulzberger/Ochs family, which controls the New York Times Company through family trusts owning Class B shares (the ones that vote in a majority of the Board of Directors), sincerely believe themselves to be guardians of a public trust. They would loath to give control to an outsider unless they fully trusted him or her.

On the other hand, those dividend checks really do pay for a lot of useful and enjoyable things that make life pleasant. Especially since the company increased those checks by almost a third half a year ago. So a White Knight seeking control would need to design a package of securities that would guarantee continuance of this dividend for some time into the future. Should the suitor be extra-generous, there might even be room for sharing any possible upside that a brand new more capable management might bring.

But who on Earth would contemplate turning the Times into a profitable and growing company? Potentially, quite a number of people, liberals all, who could assuage the consciences of the family.

Possible White Knights

Larry Page and Segey Brin are the two mega-rich founders of Google. They know quite a bit about the information age, are reported to be politically liberal, and seem to have a grasp of what it takes to stake out a position and make money in advertising and information services.

Speaking of money and the information age, there is Bill Gates of Microsoft, fierce rival of Google, and a company which has run into regulatory problems in the United States and the EU. The company has learned an expensive lesson in the need for friends and a sympathetic press.

Ron Burkle of Yucaipa Companies, a liberal friend of Bill Clinton and wheeler-dealer extraordinaire, has been known to express interest in newspaper properties, too, and might regard saving the Times as a life's mission.

But there is one billionaire who stands out as a candidate to really take advantage of the New York Times' under-managed assets: Michael Bloomberg, mayor of New York, possible presidential candidate, and owner of the Bloomberg LP, an electronic news service that sells vast arrays of data to finance industry people willing to pay tens of thousands of dollars a year to be up-to-the-split-second with the latest news moving markets.

Bloomberg already sells his content for a lavish premium price to those who need it right now. Repackaging some of that content for those in Topeka, Westchester, or a college classroom and are willing to wait for the next dawn before receiving a hard copy printout, makes eminent sense.

Finally, and most chillingly, no list of potential White Knights can leave out George Soros, international currency speculator, hedge fund artist, and moneybags for the American Left. Soros might not be able to turn a dime on the Times, but he doesn't care about making money with the organizations he funds.

These are only a few of the Anericans who occur to me as potential candidates. If we broaden the universe of poetnial moneybags to include people and entities domiciled in places like, say, Dubai, the list would be even longer.