Wednesday, September 3, 2008

Latest Re: The New York Times

The two hedge funds that pressed (successfully) for representation on the board of The New York Times Co. earlier this year are again adding to the size of their stake in that company.

The two funds, Harbinger and Firebrand, indicated in January that they planned to shake up the board by or at the annual meeting in April. This decision put them on a famously glassy uphill slope, though, because nine of the directors of TNYT are elected only through restricted Class B stock. And 89% of the Class B stock is in the possession of the dynastic Ochs-Sulzberger family. Only four directors are on the board as a result of the vote of Class A stockholders, so even if dissidents elected all of those four, the controlling family would remain ... the controlling family.

Nonetheless, beginning in January and iunto March, the Harbinger/Firebrand forces increased their holding of that Class A stock from 5% to nearly 20%. Their operational case was that the Times needed to improve its digital strategy and sell some noncore assets.

They made their point, at least to the extent of getting half the representation available to them -- two of those four seats. They reached this accord in March, and the stockholders' meeting itself was a peaceful one.

Now, though, the truce may be at an end. Harbinger/Firebrand are buying again.

Meanwhile, what's been happening to the stock price (NYSE: NYT)?

I've included the one-year chart above. The Harbinger challenge was presumably inspired (or at least rendered affordable!) in the first place by the long slide in stock prive at the end of 2007 and through the opening days of 2008 -- from above $21 last September to close to $14.

Once the hedgers made their intentions known, and of course once they started their own buying, the price rose, so that it was back above $20 at the time of the settlement announcement.

Zig-zags notwithstanding, it stayed in that area until early May, they returned to its downward course. The price is now below where it was in January. It closed yesterday at $13.12.

How does that stack up with the market indexes? Not well. The Dow Jones has lost 13% of its value over the last year, but NYT has lost 40% of its.

Anyone who still owns Class A stock is a hardy soul. Or, perhaps, (remembering yesterday's analysis) an institution obeying a mandate or instituting a hedge.

Therein lies another part of this tale. Perhaps some significant portion of the 80% of Class A stock that the two hedge funds don't owned is now owned by counter-parties of theirs, hedging swaps agreements. For in addition to their outright purchases, a recent story in the Wall Street Journal tells me that the funds have "effectively gained economic exposure to an additional 1.7 million Class A shares."

Simple arithmetic tells me that it costs more than 22 million to buy 1.7 million shares at $13.12 each. The "unnamed counterparty" in the story is by definition betting on a decline in price, but it would presumably have bought some shares itself to hedge that risk, and it would have that much voting power.

This is of course the TCI/CSX issue again. Wonder when the 2d circuit will weigh in?

And the world goes round and round.

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