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.

Proxy Fight Updates

1. The New York Times has settled its dispute with hedge funds Harbinger and Firebrand.

The Times agreed Monday to expand its board of directors by two seats and appoint to those seats Scott Galloway and James Kohlberg. These are two of the nominees who had been on the dissident slate.

This resolution shows either (a) that even the Times with its dual stock structure isn't immune from outside pressures, or (b) that the Times has cleverly fending off a challenge by giving up seats that will prove meaningless, proving that it remains effectively immune to outside pressure.

Your call.

2. CSX files lawsuit.

As regular readers of Proxy Partisans know, the railroad corporation CSX faces a proxy challenge from the London-based hedge fund TCI which contends that the company should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.

On Monday, CSX filed a lawsuit in the federal court in Manhattan, where TCI's US operations are based. The allegations are fairly complicated, but the main point of the lawsuit involves federal laws that require that shareholders who own more than a threshold amount of the equity of a company to disclose this fact as they pass the threshold. The idea is to prevent an ambush -- to bring takeover contests and such out into the open.

CSX claims that TCI has played games to hide how much of CSX it owns, violating the threshold rules in fact while pretending to abide by them in name. TCI denies having done anything wrong.

3. Begelman, former Office Depot president, aims for a director's position.

Mark Begelman was president of Office Depot in the early 1990s. Martin Hanaka knows the office-supply business too. Hanaka is the former president of Staples. They are both now nominees for the Office Depot board, their names put forward by disaffected investors who want to fire Steve Odland, present CEO.

The company's annual meeting is scheduled for April 23. March 3 is the record date.

That's it for this week. We'll meet again Sunday, proxy-fight fans!

The New York Times

It's on. The proxy fight is official.

The Times' January results show a steep drop in advertising sales and a weakening of online growth, and that led S&P to indicate that it may downgrade the NYT's credit rating.

It went further, S&P's statement said, "the downgrade may not be limited to one notch." How ominous is that?

This will certainly feed the rebellion by the Harbinger-Firebrand group, which has now put forward four nominees for the board of directors.

The rebels' problem is that the New York Times board is designed so as to perpetuate the control of the Ochs-Sulzberger clan. Class A stock, which is the sort Harbinger etc. own, can elect only up to four members of the board. The rest of the 13-member body is determined by Class B stock, which is privately held. In fact, 88% of the Class B stock is held by members of the controlling family.

This is the sort of self-perpetuating elitist structure that would normally be denounced in the editorial pages of, say, The New York Times.

Cheap irony to the side, though, there are ways of losing these things even when the fix seems to be in. Think of the way Eisner was run out of Disney.

More on this tomorrow.

Shuffling about on NYT board

The grey lady, the New York Times, is shuffling her own board membership around, in anticipation of a proxy fight at the annual meeting scheduled for April.

They presumably want to offer the strongest slate they can, and it appears that Brenda Barnes and James Kilts don't count as among the strongest in their eyes.

Of course, press releases never put things that way. The good news is that this time we're also being spared the usual pap about how Mr. Kilts and Ms Barnes have simultaneously decided they need to spend more time with their respective families. We're told simply that they won't stand for re-election.

Instead, Dawn Lepore and Robert Denham will join the incumbents on the slate. In a statement, the chairman, Mr. Sulzberger, said: "The skills, expertise and leadership qualities of these two nominees will greatly benefit our company during this time of tremendous change in the media world."

Meanwhile Harbinger and Firebrand between them now own 10% of the company's equity. Representatives of those two funds apparently met with Sulzberger Friday, but the subsequent manuveuring would certainly seem to indicate that nothing was resolved.

New York Times Inc.

New York Times Inc. has its annual shareholders' meeting in April.

Activist investors have indicated there will be a proxy fight. Two funds who've made those statements, Harbinger and Firebrand, now own between them 4.9% of the company's equity.

When these two firms buy a significant share, they're implying (a) we think the underlying assets are valuable, and (b) we think that existing management is depressing that value.

This isn't the first time Harbinger and Firebrand have worked together. They pushed for a change on the board of Gateway, a computer manufactuer, in 2006. As a result Scott Galloway, Firebrand's chief executive, ended up on that board.

I don't know how cause and effect work out here, but Gateway was acquired by a Taiwanese company, Acer, a year later. Did Galloway press for that? Will he press for NYT Inc. to put itself on the auction block too, if he ends up on their board? I don't know.

I do know, though, that newspaper-companies have been attractive takeover targets in the last two years.

So far the Harbinger/Firebrand forces seem to be emphasizing divestiture, not consolidation. They're suggesting that the NYT company owns too many non-core products.