Merger and Acquisition: Is The New York Times A Target?
By Ann Sosnowski
In this article
The New York Times reported just shy of its expected earnings, but Internet revenue is now 10% of its business.
Private equity was 26% of merger and acquisition deals in the first quarter of 2007.
Could NYT be a private equity target?
Merger and Acquisition: Is The New York Times A Target?
So, the New York Times Company (NYT:NYSE) earnings report was a bit of a let down. But I'm not letting go of the stock. Not only am I bullish on the stock, but I'm also bullish on a possible buyout of the company.
NYT's first-quarter profit fell 26%, mainly due to weakness in print advertising.
Earnings declined to $23.9 million, or 17 cents per share. Analysts expected 18 cents per share. Even though there was only a one-cent differential between reality and expectations, NYT jumped up to an open of $25.28, only to close the day down 5.46% at $23.90.
Of course, some of the loss in NYT's earnings was from a quick flip it did on a New Jersey plant. NYT agreed to purchase a plant in New Jersey for $140 million in March, but then quickly turned around and sold it for only $92 million to KIF Property Trust, along with two adjacent properties that NYT owns.
The purchase for the plant was on NYT's first quarter earnings report… and the profit from the sale won't be completed until the end of the second quarter.
NYT is getting a lot of help from its Internet revenue. Sales increased 21.6% to $74.3 million, compared to $61.1 million in the same quarter in 2006, mainly due to increased online advertising.
NYT's forward looking statement was that Internet revenue may not grow the 30% it expected for 2007. But we may be pleasantly surprised.
Merger and Acquisition: Tribune Already Bought With Private Equity
These earnings drops weren't relevant to only NYT: Tribune Company (TRB:NYSE) and Gannett (GCI:NYSE) saw drops in profits.
Of course a drop in Internet revenue is a big problem for newspaper companies, as I've stated previously. Newspaper readership, and with it print advertising, is diminishing across the board, and all newspaper companies need to beef up their online presence in order to make up for that falling revenue.
If online revenue doesn't grow as much as print revenue is depleting, they could be in for a tough few years until they get all their ducks in a row.
NYT is strong, because they already have the means. The New York Times website is one of the most popular and most widely visited on the world wide web, and it owns About.com, the segment of its business that is growing extremely well and is almost 10% of its total business.
Of course, Tribune's failure isn't much of a concern. It's now Sam Zell's concern, as he bought out the fledgling company with private equity. Shareholders would do best to sell shares now.
Which begs the question: Is The New York Times Company a private equity target?
We're definitely in an interesting place in the market. The Dow continues to hit new highs on increased merger and acquisition activity, as well as private equity buyouts. (For those of you keeping count, merger deals in the U.S. are now at $544 billion, up 32% from this time last year. 26% of this activity in the first quarter was from private equity deals.) Why is this important?
Easy. Every investor believes they hold in their hands THE company that will be bought out next. And because of that, they're pumping their favorite stocks with cash.
But to be blunt, these things happen so fast. Take for example Dollar General Corp. (DG:NYSE). I wrote that stock up to be one of the best investments to make this year in my April Diligent Investor issue. The night before I sent the recommendation to subscribers, it was announced that DG had been bought to go private.
After weeks of research, I didn't even know this was going to happen. In essence, it's a crapshoot. All you can do is look at the trends: What sectors are receiving a lot of attention?
Newspapers for sure. And NYT is an interesting story.
Merger and Acquisition: Could the Sulzberger's Take NYT Private?
For a very long time, there's been a fight between Class A and Class B shareholders of NYT stock. This is called dual-class structure: Class A shares can be bought on the open market; Class B shares have been owned, in this case, by the Ochs-Sulzberger family.
Just recently, Proxy Governance Inc., a shareholder advisory firm, “recommended” that Class A shareholders be able to vote on four of the 13 director's chairs of the company, in order to give shareholders more of a voice in the company.
According to a Reuters article:
“Media investor and Times adviser Steven Rattner last week told the Reuters Private Equity and Hedge Funds Summit that there is no chance of the Times changing its share structure, but that it may have to come up with other answers to ease shareholder concerns.”
Wouldn't the best way to ease shareholder concerns be to have the company bought outright? Maybe by the Sulzberger family itself… I'm just saying.
NYT is in a much better position now than TRB was when it was bought. It only has $1.45 billion in debt, compared to TRB's nearly $5 billion.
And anyway, if the family decides to take it private, at least those shareholders' demands will be one headache they don't have to deal with.
Regardless of what happens, I'm staying bullish on New York Times Company (NYT:NYSE).
***
Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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Related Resources
Merger and Acquisition: “Buyouts Help Drive Stock Market Rally” - CNN Money
Merger and Acquisition: “A Tilt in Wall Street's Pursuit of Private Equity” - The New York Times