The New York Times (NYT) is now running on fumes. S&P has downgraded the company’s debt to junk, and Moodys is about to do the same. The stock has fallen to $10 $9, and is being propped up primarily by the company’s non-news assets. Given the ongoing decline of print advertising, management now has to take emergency steps to avoid defaulting on the company’s $1.1 billion of debt.
1. Sell the stake in the building. The New York Times recently moved into a spectacular new Times Square headquarters, which it co-owns with developer Forest City Ratner. At the peak, the NYT’s stake in the building might have fetched $1 billion, or $750 million after-tax. Now, the company might be able to net $500-$600 million for the stake. The company needs to sell the building immediately. (It can rent it back, so staffers won’t have to move. It just needs the capital. Now.)
2. Try to sell the Boston Globe and Red Sox stake. Probably a few hundred million of value left in the Globe, at least for a while. Newspaper assets are hard to sell these days, but the Globe is a famous, valuable franchise. It might fetch $300-$400 million. (Jack Welch approached NYT about buying the Globe in October 2006. He is one of the few people who could raise the money.) Lehman recently estimated that the 17% stake in the Sox is worth about $150 million.
3. Eliminate the dividend. NYT Co. currently pays out about $130 million of cash a year. It can’t afford to do this, especially prior to selling assets. The company currently has only $46 million of cash, is burning cash, and is relying on short-term credit to finance itself. This situation will only get worse as advertising continues to fall. Until it secures more liquidity by selling assets, the dividend has to go. (Yes, this might trigger screams of pain from the Sulzberger clan, who reportedly live off the dividend. But the alternative might be defaulting on the debt and/or severely damaging the news franchise. And those options would wipe them out.).
4. Shrink, sell, and/or shut down the regional papers, which are bleeding cash. This will require negotiating with the unions, which likely have veto over personnel cuts. Unfortunately, for the sake of the company, it’s time to play S.I. Newhouse hardball: Explain to the unions that the choice is cuts or closure. (In September, revenue at this division was off by 15% to $89 million which is faster than the rate of decline earlier in the year.)
5. Reduce the size of the New York Times newsroom by 30%. This will make the paper comfortably profitable again (for a while). The improved cash flow, combined with the increased liquidity from the asset sales, will allow the company to vastly reduce its debt load, which will reduce the possibility of default (and equity value destruction) in the future. The particular cuts can be made by analysing the traffic to NYTimes.com and see what/who is being read and what/who isn’t. Chances are, 20% of the content and writers produce 80% of the value.
6. Significantly reduce the $1.1 billion of debt–and, possibly, pay it off completely. This will put the company on far sounder financial footing, which will make it easier to keep control and keep creditors at bay. (NYT could sell the Globe, any profitable regional papers, and perhaps its joint ventures in two newsprint and paper mills.)
7. Use the breathing room to put a long-term print-to-online transition plan in place. In all likelihood, another 40% of the newsroom will eventually have to go. Figure out who, how, and when. Start making the digital operations the centrepiece of the company, and rehire the best writers and editors into New York Times Digital, buying them out of their expensive New York Times pension and union contracts (It’s a new world, and unfortunately benefits and pay scales need to be far more closely tied to performance). Develop a long-term plan to manage the decline of the print business, while continuing to milk it as long as possible. Then sit back and watch the New York Times Digital stock fly.
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