The New York Times And This Whole Dual Class Stock Thing

The New York Times Co.’s showdown with Morgan Stanley portfolio manager Hassan Elmasry, some coverage might lead you to believe, has everything: Family. A venerable franchise. Pride. Righteous, or self-righteous, causes on both sides—journalistic integrity versus shareholder activism—and neither one can entirely hog the high ground.

(Did I say there’s everything? I overstated. There’s no sex, but then this is business.)

Too bad it’s not an actual fight, given the way the Times Co. is set up. Which is why I have a very hard time believing any recent chatter suggesting the Times may well move to take itself private—chatter fairly convincingly dispelled on April 11 by Quadrangle Group managing partner and longtime Times Co. consigliere Steven Rattner:

“The Times has been clear about their interest in going private. It doesn’t appear to be particularly attractive,” he said, adding such a deal would only create a new set of problems.

I would not try to persuade anyone that the Times’ current management has been brilliant, which unfortunately is in keeping with its historical standards. (Plentiful evidence can be found in the eminently readable history of the Ochs and Sulzbergers written by Susan Tifft and Alex Jones, The Trust.)

But that’s not the salient point. This is a company governed by a pretty iron-clad trust, one that’s not at all easy to change. (Which, to note yet again, every single investor in the company was aware of when they bought the stock.) This is a family in which no dissidents have surfaced. This is a company in which an uncharitable view of market demands is written right into the proxy statement:

The primary objective of the 1997 Trust is to maintain the editorial independence and integrity of the New York Times and to continue it as an independent newspaper, entirely fearless, free of ulterior influence, and unselfishly devoted to the public welfare.

(I’ll leave it to the lawyers to parse whether the market qualifies as an “ulterior influence,” but in any event it’s clear what concerns are paramount for the family.)

Going private will only further expose the company, and the Times itself, to market forces, in the form of debt payments. Given that the family’s long been on board with the company mission and there’s no evidence of mounting internal dissent—why would they decide to do that?

Other investors have taken aim at other media companies’ dual-stock structure. (One of them: Mario Gabelli and Media General, back in the mid-Nineties.) Elmasry is handling this fight better than similar investors have in the past. If I may be obnoxious and quote from my column in the just-out issue of BusinessWeek: Elmasry recognizes that merely screaming about stock structure won’t change a family’s mind. This is why, at a February board meeting to which he was invited to air his gripes, he artfully pitched family members on how breaking up the Times’ dual-class stock would better protect the crown jewel of the Times itself. (This logic is lost on me, but points to him for trying.) He’s also impatient with the shrug-shoulders excuse that because newspapers are mature and challenged their stocks have tanked. His presentation cited at least one company in another stagnant, long-in-the-tooth business—retailing—that has prospered relative to its peers.

All the same: there is a very poor track record when it comes to convincing media companies to give up the family-controlled, dual-class stock structures. Gabelli could not change Media General’s . As for a more recent example, to self-quote again:

To put the situation into clearer perspective, last decade a disgruntled family faction did arise within the Bancroft family, which controls Dow Jones & Co through a similar structure. For those of you keeping score at home: Dow Jones was not sold. And it was years before its top management departed.

Yes, it’s true that the Reader’s Digest Association voted to do away with similar family control in 2002. But that was a company in which the founding family no longer was involved with the business, and which, if I recall correctly, did not have anything resembling the level of family control by the Times Co.’s trusts.

There’s no reason for the family and company to do anything, in fact, other than the rope-a-dope Time Warner employed with Carl Icahn: toss a few carrots to the shareholders, continue scrutinizing the portfolio and whacking costs; and wait for the market to slowly drain the urgency from investors’ complaints.

The Times Co. has already thrown plenty of carrots (if I may stretch this metaphor to the breaking point). The company can point to $700 million in asset sales in the past 12 months, and they just significantly jacked up the dividend. (A classic media company sop to restive shareholders, that.)

Elmasry is a smart guy. Many people interpret—thanks largely to this Wall Street Journal story (subscription required)—that he is sore about how the Times has handled his concerns. I doubt he’ll give up easily. But I also doubt he’ll get the traction that he needs to effect major change at the company–-or at least the changes that he seems to most want.

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