A Slo-Mo Strategy at New York Times

Behind hedge fund Harbinger's bid for boardroom seats at Times and Media General

If there's any fashion to investing in media companies, then the proxy fight is the new black. I Hedge fund player Harbinger Capital Partners is swooping in on the saggy stocks of New York Times Co. (NYT) and Media General (MEG), which owns 25 daily newspapers and 23 TV stations concentrated in the Southeast. In the near term, this means nothing, since both companies have dual-stock structures that allow the founding families to maintain control. In the longer term, Harbinger's moves might mean...something, given that the fund is fielding an alternate slate of board candidates aimed at seats voted on by nonfamily shareholders. Harbinger (and Firebrand Partners, its ally in the Times Co. move) join Jana Partners as this year's media activists. Jana is already tussling with management—and has unveiled an entire proposed board—at long-running online media play CNET Networks (CNET).

Each company, of course, comes with its own particulars. Times Co. stock is trading at lows not seen since the mid-'90s. Media General is held in such low regard that its billion-dollar revenue level translates to a market cap that's less than half that. CNET has managed the feat of taking in around $400 million in online ad revenue—the most prized ad dollars out there, judging by the deal multiples thrown around—while having a stock that performs as poorly as a newspaper company's. Its shares have fallen 40% in the past two years. CNET has a Yahoo! (YHOO) problem in that it's underperforming a niche in which it's well-positioned. Unfortunately for CNET, its market cap is around $1.25 billion, not Yahoo's $26 billion, and therefore it's an easier target—especially since it does not have two classes of stock. (CNET hastily enacted a "poison pill" provision, which Jana is challenging in court.)

The good news for media executives is that someone sees value in their battered companies. The bad news is these are not the kinds of investors that executives want calling the shots.

Harbinger's moves, at least, represent recalibrated tactics for action-minded investors eyeing the sluggish media sector. Not long ago, Morgan Stanley (MS) Investment Management, led by Managing Director Hassan Elmasry, made a run at Times Co., even suggesting to the board that the best way to preserve the journalistic bona fides of the company's flagship would be to go to a single class of stock. This did not work, and Chairman Arthur Ochs Sulzberger Jr. and the company were able to stonewall Elmasry.

Harbinger is officially mum on its moves, but I chatted with an individual familiar with the Times Co. bid. On the issue of family control, this person was fairly philosophical and quoted a line from Brokeback Mountain: "If you can't fix it, you've got to stand it."

Harbinger hopes common shareholders will elect a few board members who could gradually bring enough of the board around. (This isn't necessarily a slam-dunk: Around a fifth of Times common shares are family-owned.) Of course, this process could take so long that, by the time Harbinger has sold enough directors on a strategy, circumstances may have changed enough to warrant an entirely new approach.

RIGHT TACK

The person familiar with the bid dismissed that concern, saying boardroom dynamics do not equal "a game of dodgeball, where nine members go to one side and four go to another....Board members all want the share price to go up." In fairness, the outline of a Harbinger/Firebrand-approved Times strategy of focusing on the newspaper, its digital offshoots, and about.com, its how-to portal, actually makes sense right now. As one close observer of the company points out, if you subtracted The Boston Globe and the properties in the company's regional newspaper group, you would drop those posting the ugliest losses—and hold on to about.com's growth and whatever digital upside The New York Times itself may yet have.

Each of these situations will take time to play out. But given the fixed nature of Times Co.'s and Media General's stock structure, those will take longer. And beyond that, well, good luck to Harbinger. "Everyone thinks they can fix newspapers," sighs one Wall Streeter. "No one has found the magic bullet."

For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia

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