Clash over N.Y. Times a page turner
For New York Times Co., the timing of today’s annual shareholder meeting could have been better.
Investors are deciding whether to withhold proxy votes in protest of the company’s strategic direction and a stock structure that clinches the Ochs-Sulzberger clan’s control of the media company. Fresh in their minds is a quarterly earnings report last week that showed a continuing drop in print advertising revenue and -- perhaps more ominously -- an unexpected slowdown in the growth of Internet ad sales.
What started nearly two years ago with a critique of the company’s performance by a Morgan Stanley money manager has turned, for some, into a debate about the role of newspapers in American society and whether news media companies whose shares trade publicly ought to be exempt from the usual sink-or-swim rules of Wall Street.
Pressure from unhappy shareholders led to last year’s sale and breakup of Knight Ridder Inc., then the nation’s second-largest newspaper chain. It also factored into the months-long auction of Tribune Co., parent of the Los Angeles Times, which culminated in an April 2 agreement with Chicago financier Sam Zell to take the company private in a buyout involving an employee stock ownership plan.
According to Washington Post Co. Chairman and Chief Executive Donald E. Graham, all that keeps his company from a similar fate -- along with New York Times Co., Wall Street Journal parent Dow Jones & Co. and other newspaper publishers -- are stock structures that give their controlling families super-voting rights and virtually ironclad sway.
At New York Times Co., holders of the publicly traded Class A shares elect only four of the 13 board members. The other nine are elected by the family-controlled Class B shares, although they represent less than 1% of outstanding shares. Ochs-Sulzberger family members, who have controlled the New York Times since 1896, also own nearly 19% of the Class A shares.
Absent this “two-tier” structure, Graham wrote in a Wall Street Journal opinion column published Monday, the New York Times Co. would face “being auctioned off like a side of beef.” In such a sale, he added, the newspapers wouldn’t necessarily land in the hands of an owner “prepared to spend money and run other risks like the Sulzbergers.”
Most big newspaper publishers have seen their shares swoon in recent years as competition from the Internet, retail-industry consolidation and other factors have chewed deeply into ad sales. New York Times Co., however, has fared worse than many peers, losing 55% of its stock value since its June 2002 peak. The shares fell 17 cents Monday to $23.98.
Besides its flagship newspaper, the company owns the Boston Globe, the International Herald Tribune, 15 other daily newspapers, two New York City radio stations, the Internet advice and search site About.com and nine TV stations that it is selling to a private equity firm.
The poor stock performance prompted London-based portfolio manager Hassan Elmasry, whose fund at Morgan Stanley Investment Management owns 7.6% of New York Times Co. shares, to write a series of critical letters to the company beginning in mid-2005. Elmasry’s gripes have included “capital misallocation,” such as the company’s new Renzo Piano-designed headquarters tower and the $410-million purchase of About.com, and “overly generous compensation” of executives.
A prime goal of his campaign is to abolish the two-tier stock structure, which he contends makes management unresponsive to shareholders. He also has pushed for the separation of the jobs of company chairman and New York Times publisher, both held by Arthur O. Sulzberger Jr.
Elmasry, who declined to comment for this article, rallied other institutional investors to his cause and succeeded in getting nearly 30% of Class A shareholders to withhold their votes at last year’s annual meeting. He was expected to again withhold his votes today.
In an unusual meeting with the New York Times Co. board in late February, the money manager pointed out that similar protest votes had resulted in major shake-ups -- some involving the ouster of top executives -- at companies such as Walt Disney Co., Home Depot Inc. and Pfizer Inc., a person familiar with Elmasry’s presentation said.
“Any [withhold] number that’s significantly higher than 30% is going to get a lot of attention,” said New York-based publishing analyst Doug Arthur.
Two shareholder advisory firms, Institutional Shareholder Services and Glass, Lewis & Co., have backed Elmasry by recommending “withhold” votes.
A third service, Proxy Governance Inc., bucked the trend by recommending a vote in favor of the four directors on the ballot. But the firm also recommended that Janet Robinson, the New York Times Co.'s CEO and a Class B director, become a Class A director so that public shareholders would have a say in management.
The company has struggled with the issues surrounding its ownership structure and even considered going private, although it ultimately rejected that idea, people familiar with the situation say.
It contends that it already has taken significant steps to respond to shareholders’ concerns. Spokeswoman Catherine Mathis cited a 31% increase in the dividend, the sale of noncore businesses such as the broadcasting division and a move to save money by renting out five of the 27 floors that the company originally intended to occupy in its new headquarters building.
As for the two-tier stock structure, only the family can change it and it had no intention of doing so, Mathis said. Its purpose is to protect the newspapers’ editorial independence, she added.
Charles Bobrinskoy, vice chairman of Chicago-based Ariel Capital Management, which owns 6% of Tribune Co. shares, said the firm’s investment in newspaper publisher McClatchy Co. was “controversial within Ariel” because of McClatchy’s two-tier structure.
He said the structure had “a signaling effect: ‘We’re not necessarily going to run this company to maximize shareholder value.’ ”
Wall Street tends to discount “the unique role of newspapers as a public trust,” said Robert H. Giles, curator of the Nieman Foundation for Journalism at Harvard University. He applauds New York Times Co. for defending its stock structure. “What the Times is trying to safeguard is so essential that they need that protection.”