“Activist” Investor Takes a Run At The New York Times

When activist investor ValueAct Capital bought a seven percent stake in the New York Times Company on August 11, they actually bought absolutely nothing that would enable them to redirect the fortunes of the moribund media giant known as The Gray Lady according to their preferences.

That’s because the Ochs-Sulzberger Family Trust, consisting of the descendants of the founders who bought the failing New York Times in 1896, owns 88% of the Class B Voting Stock, which enables them to overrule any actions taken by the Class A shareholders while leaving the Class B investors outside the family impotent when it comes to inflicting changes on the company.

ValueAct believes that the New York Times should be much more profitable than it is, an opinion substantiated by a 32% year-to-date downward spiral in the company’s share price before ValueAct bought into the family, which blipped the share price up 11% to  $35.10, according to Bloomberg News.  (The New York Times itself reported that the share price was down by 27% year-to-date and claimed an improvement of “more than 10% after the ValueAct got into the act.)

Today – right now – shares in the NYT are selling at $32.49, down from the August 11 close of $35.10, indicating a lack of shareholder conviction that ValueAct knows whereof it speaks.

ValueAct is supposed to be a canny investor. How canny can they be if they dropped approximately $400  million to buy a stake in a company that affords them no real opportunity to make the changes they propose?

And what are those changes that ValueAct wants to make?

According to Bloomberg, ValueAct believes “…that most current readers and subscribers are interested in the bundles and would pay a large premium for it but are not aware the offerings even exist. This is an opportunity we believe management needs to drive with urgency, as it is the biggest lever to accelerate growth, deepen NYT’s competitive moat, and ensure the long-term strength and stability of the platform.”

What, exactly, are these “bundles?”

There’s the basic digital subscription, with a teaser rate of $1 per week against a renewal rate of $17 per month after the first year with an add-on for the physical paper. Then there’s the Games Bundle which features the New York Times crossword puzzles, and the Cooking Bundle which gives subscribers access to the full library of  Times recipes  (Full disclosure: these are some of the worst recipes you will ever come across on the internet. Home cooks beware.) Waiting in the wings is a fourth bundle consisting of in-depth sports coverage that is still in development. In an attempt to skim off some eyeballs from all the other sites that review products, the Times also has its “Wirecutter” section, which purportedly tests and recommends the very best in just about every product category.

So, ValueAct, this super canny investor, buys stock that affords them no chance of implementing the changes they want to make by promoting the bundles that almost no one is going to want anyway.

Here’s the reality. There are plenty of challenging, free crossword puzzles out there, Scratch the Games Bundle. There is an inexhaustible supply of sports blogs to fill that niche. Scratch the Sports Bundle, and you can get more and better recipes with Youtube tutorials. Scratch the Cooking Bundle.

Why is this important?

ValueAct’s probably vain attempt to influence the leadership of the New York Times COMPANY (rather than the paper itself) demonstrates exactly how impervious the nation’s premiere newspaper is to hostile takeovers….or positive changes that were not schemed up by the owners themselves.

Unlike the Washington Post, which was helmed by The Washington Post Company, consisting of the Wexler and the Graham families until Jeff Bezos bought them out in 2013,  the Times is immune to hostile takeovers, which bodes well for the doyen of American journalism for as long as the Sulzberger clan remains in control and remains true to the slightly left of center traditions of the family.

Now that Jeff Bezos owns the Washington Post through Nash Holdings, a privately owned company he controls, the Post, like the Times, is immune to hostile takeovers…but we have to rely upon Bezos to set the paper’s policies, which means that the second most influential news organization in the country is literally controlled by one person who is perhaps a little less than 100% stable all the time.

Together, The Times and the Post are the only two major news outlets in the United States that are not controlled by conglomerates but they aren’t even near equals.

The Times boasts a daily print circulation of 780,000 while the Post only claims daily print circulation of 190.000 but, then, The Times services a much bigger target population than the Post does. However, the Times only claims 8.3 million digital subscriptions, while the Post disingenuously asserts that it has a monthly average of 86.8 unique digital visitors. That’s disingenuous because the Post does not release its digital paid circulation numbers but other sources indicate that The Post has around three million digital subscribers. one-third as many as the Times has. So, it’s a good thing that Bezos has the world’s second or third deepest pockets.

But Who Knows Which Way The Wind Blows

One of the reasons that Jeff Bezos was able to pick up The Washington Post for $250 million in 2013 was that Graham Holdings (then The Washington Post Company) was actually making more money off its broadcast holdings than it was making off the paper but its broadcast licenses were vulnerable to potential reprisals against those licenses in response to the political positions championed by the paper.

In 2013, The Post was in-step with the Obama administration, but it didn’t take a clairvoyant to see the rapidly changing shape of the Republican party and the high probability that the Republicans would win the next presidential election….and begin taking reprisals upon its enemies. Remember, it was The Post (with an assist from The Times) that forced Nixon out of office. Republicans still bear a great big grudge about that.

Between them, the Big Three Newspaper Chains-  Gannett/Gatehouse, Tribune/Digital First, and Lee/BH Media – own one-third or 416 of the daily newspapers in the United States. News Corp, surprisingly, now owns only two: The New York Post (my alma mater) and The Wall Street Journal, which is the third most influential newspaper in America, after the Times and the Washington Post.

In recent years, we have witnessed the rapid deterioration of regional news organizations, with major newspapers failing outright, converting to more and more conservative philosophies dictated by their corporate owners, often turning themselves into little more than shopping flyers. In many cases, the newsrooms have been decimated by firing older, more seasoned reporters and replacing them with younger, more easily moldable replacements. Editorial policies are now corporate policies.

So, it’s a good thing that no one can simply buy out the Ochs-Sulzberger clan or buy off Jeff Bezos.  Better the devils you know than the devils you’ve never heard about.

By the way, has anyone else noticed that Nash Holdings replaced Graham Holdings as the owners of record of the Washington Post? Graham Nash?  Where are Crosby, Stills, and Young?

How is the Times Taking This?

Not well.

The  Sulzberger clan has always been knee-deep in the management of their honeypot and has never taken well to having strangers sticking their noses into their business. This time around, obviously displeased by this unwanted attention, the Times has sought the assistance of The Bank of America to act as a counter-bidder should ValueAct attempt to force its way onto the paper’s board of directors. They have also retained Sidley Austin, a law firm that specializes in fending off intruders and takeover bids.

The ValueAct bid is strange because of the manner in which the New York Times Company is structured, the Class B shareholders elect nine of the 13 members on the Board of Directors, and the Ochs-Sulzberger clan owns 88% of the Class B stock.  Even if Valueact wanted to spend the money required to elect their proxies to all four of the slots on the board reserved for Class A shareholders, they would never be able to acquire a controlling interest in the Times.

Therefore, despite protestations to the contrary, it becomes readily apparent that ValueAct’s real motive is to force the Times to buy back shares, concentrating the family’s control over the paper, driving up the share price, while depleting capital reserves for research, development, and marketing, so that they can cash in on their investment.

But Exactly What is An “Activist Investor”

An activist investor is an individual or a group of individuals (or institutional investors) with very deep pockets who buy significant interests in publicly-traded companies with the intent of building up the profitability of those companies so that they can then sell out their holdings at a significant profit after enjoying several years worth of strong dividends as a result of their good work.

But it doesn’t always work out that way, does it? (Hint: No!)

Activist investors, more often than not, are the piranhas of the investment world. Some activist investors, and here names like Carl Icahn, Mitt Romney, Elon Musk, and, yes, Jeff Bezos come to mind,  buy up stock, run up the share prices and then dump their shares when the stocks rise to their targeted price points, moving on to their next target of opportunity, leaving behind the seriously depleted shell of the company they bought into.

In other words, activist investors are often guilty of squeezing the golden goose for all the eggs they can get out of it, killing the goose in the process.

That’s not just my opinion. That’s also the opinion of Jeffrey Ubben, the founder of ValueAct Capital, who cited the example of how Corvex Management managed to mismanage ADT Security when they bought into the company and insisted that management use their liquid capital to buy back ADT stock. (Corvex was founded in 2011 by Keith Meister, who trained under Carl Ichan, setting up his own company with $25o million seed money from George Soros.)

Meister’s intervention at ADT resulted in the security firm falling behind on research and development at precisely the time that tech giants were building their way into the consumer security segment with their internet-based products.

Ubben also criticized Carl Icahn for making use of Twitter to publicize his moves in real time which Ubben believes encourages naive day traders to buy into the stocks that Icahn touted, driving up the share price and enabling Icahn to cash out more quickly…but that’s precisely what ValueAct did when it “announced” that it had acquired a 6.7% share of NYT.