The New York Times Company (NYT): What Do The Sulzbergers Do When The Money Runs Low?

Back in March, The New York Times Co. agreed to give two activist hedge funds with a combined 19% stake in the company a pair of seats on its 15 member board of directors. I was skeptical, writing that Scott Galloway "won’t be able to do much unless the controlling family decides it wants to make the changes he’s suggesting — and if they do, there’s no need for him to be on the board!"

Since the activists entered the picture the stock has slid 30%. A piece in BusinessWeek suggests that the stock may be undervalued when you consider the company’s strong portfolio of brands: About.com, The Boston Globe, 17% of the Boston Red Sox, International Herald Tribune, a radio station and, oh yeah, The New York Times.

There’s an argument to be made that, although its operations and returns on capital are weak and getting weaker, its brands have never been stronger. The newspaper industry as a whole is in the toilet, but the time-honored brands could be of greater value to a digital media company: sell some assets and distribute the money to shareholders, and investors will get rich.

But there’s one problem with that theory: it’s like saying that there are millions of dollars in change scattered all around the country, and it’s just ours for the taking. The problem is that you can’t find all the discarded change and 2 out of 15 seats on a board of directors controlled by an autocratic family won’t do anything to increase shareholder value. And let’s be real: the controlling Sulzberger family really doesn’t care about the company’s minority shareholders. Valuing the company based on anything other than the current operations doesn’t make sense because, with the board structured the way it is, there’s no reason to think the company will ever operate any differently. And the current operations aren’t good.

What could turn things around? The same thing that turned around Dow Jones: an out of left field bid. publicly disclosed bid for the company that forces the ruling family’s hand. Maybe that will happen at some point in the future but it’s just too speculative for me. Until then, shareholders are stock owning a company with a history of value destruction, where the board doesn’t care about them, and has procedures put in place that entrench their power: that’s not a stock I want to own — it’s a classic value trap and only BusinessWeek seems to be falling for it.

But here’s the thing: the worse it gets, the better it may be for the minority shareholders. If operations continue to decline and the company can no longer make the dividend payments the Sulzbergers rely on to pay for their servants and opera tickets, they may have to take drastic action to shore up their own wallets.

And then, and only then, the company may look to maximize value in a way that benefits all shareholders.

Zac Bissonnette