Lehman on New York Times Co.: Stock Gains Driven By Protestors, Short Sales

Lehman Brothers analyst Craig Huber just came out with a report suggesting that the New York Times’ decent stock performance thus far this year comes in part from a rise in shorted shares—and investors who want to own stock in time to register protest votes at the company’s upcoming annual meeting.

Or, as he puts it (emphasis added, and sorry for the ugly formatting—text conversion isn’t always pretty):

Since late January (1/26/07), New York Times stock has increased 13.7% to $26.03 (vs. the S&P 500 up 2.0% for the same period). We believe this move was unwarranted and was due primarily to the following issues: First, there was renewed speculation that the company may change the dual class share structure due to pressure from large shareholders making the company a potential takeover candidate which we think is unlikely to happen (“New York Times Shares Rise Nearly 7 Percent”, Reuters, February 7, 2007). Also, there was speculation that investor Warren Buffett had invested in New York Times which we think is unlikely (“New York Times Rises on Talk Buffett Is Buying Stock”, Bloomberg, February, 7, 2007). Lastly, the company’s record date of February 23rd, which is when an investor must own the stock in order to be able to vote at the annual meeting on April 24, 2007, put upward pressure on the stock, we believe.

We believe the February 23rd record date put additional upward pressure on the stock price by creating a short squeeze over the past two weeks. The “record date” is the date investors must own the stock to be able to vote at the company’s annual meeting. We believe this caused a short squeeze as brokers who lent out shares to be sold short had to recall the shares for the owners of the stock who wanted to be holders of record of New York Times shares on February 23rd and therefore eligible to vote at the April 24th annual meeting.

We believe the items up for vote this year are no different than in prior years; Class A shareholders have very limited items they can vote on (auditors, stock compensation plans, acquisitions involving NYT stock, and the like); however, they do vote on 4 of 13 directors every year. The other 9 directors are voted on by the Class B shareholders (which the Sulzbergers and insiders own) at the same annual meeting.

The large short interest of New York Times stock likely increased the magnitude of this short squeeze. The number of New York Times shares that were short in January went up 10% vs. December and now makes up 15% of the float and represents 13.5 days of volume traded. We do think some investors want to log in a “protest vote” by withholding votes for the four directors the Class A shareholders vote on. This would be similar to what happened a year ago which did not change anything. At the 2006 annual meeting, 36.0 million Class A votes on average were withheld for the four directors elected by the Class A shareholders vs. an average of just 1.3 million votes withheld for these directors in 2005. We do not think these “protest votes”, however, put any significant pressure on the board or Sulzberger family to get rid of the two classes of stock which we believe is the goal of certain large shareholders (“Morgan Stanley Arm Again Criticizes Times”, Wall Street Journal, January 23, 2007). It is very unlikely in our opinion that the Sulzbergers are going to get rid of the two classes of stock. The two class voting structure has served the Sulzbergers very well since the company went public in 1969 and is quite common in the media industry.

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