The New York Times Company has added financial mismanagement to the list of its offenses against its readers and shareholders. We continue to await the denouement of this drama in the decisions of the control block of stock held by the founding families.

The New York Times is evidently quite proud of its peculiar and extravagant non-core acquisition of About.com, since it was honored with the only graphic representation of any business segment in the Times Company’s 10K, filed with the SEC last month. About.com was acquired by the Times a year ago for $410 million in cash. Both the huge price for this acquisition and this transaction structure seemed inappropriate to us — unless the Times was swimming in cash — since About.com has only made $11.8 million in profits since its acquisition on March 18, 2005. In other words, if the NYT paid 5% interest on the $410 million in debt necessary to buy About.com, annual interest expense would be over $20 million, well in excess of the profits earned by that little business. (By way of contrast, the Times’ News Media Group had operating profits of $558 million as recently as 2003.) Moreover, About.com, as an internet site, seemed to us to have a risk profile greater than the Times as a whole, which is a diversified media company. Therefore, prudence would suggest to us that a risky operation of little profitability should be financed with equity, not straight debt, if somehow About.com was even worth its extravagant price tag. This is a lesson from Corporate Finance 101.

Apparently, we were not the only ones who noticed the poor judgement on the part of the New York Times Company (HT: MM). Moody’s Investor Service, one of the two main debt-rating agencies, took note as well, almost precisely (and deliberately?) a year to the date of the acquistion of About:

MOODY’S REVIEWS RATINGS OF THE NEW YORK TIMES FOR POSSIBLE DOWNGRADE
Approximately $1.6 Billion of Debt Securities Affected.

New York, March 17, 2006 — Moody’s Investors Service has placed The New York Times’ A2 senior unsecured long term debt, and P-1 commercial paper ratings on review for possible downgrade.

The review is prompted by Moody’s growing concerns about The New York Times’ high financial leverage, deteriorating operating margins and weak free cash flow available for debt reduction, combined with concerns over intensifying cross media competition, including the internet, and growing event risk in the newspaper sector. The company’s significant share repurchase activity over the last four years, debt financed acquisition of About.com, and capital expenditures associated with the transition to its new headquarters leaves the company with a significant debt burden, heightened adjusted leverage, resulting in diminished financial flexibility.

We have written extensively on our own and with Thomas Lifson of The American Thinker about the flawed business strategy and financial reporting of The New York Times Company. In addition, we have said that too much of the photo on the left translates into the chart on the right:

Now, however, the Times has reached for a new low. Not only have the Times’ editorial and news policies come under criticism, not only have the sufficiency and clarity of its SEC disclosures been criticized, but now the Times’ business judgment in keeping the corporation on a sound financial footing has been questioned. Public shareholders have no role in the governance of the New York Times Company, as we have discussed, because the control block of New York Times stock is held by the founding families. We await the day that they will awaken to see that their declining fortunes are not a temporary episode, and will take the necessary actions to restore one of the great franchises in American business and media history.

This entry was posted on Sunday, March 19th, 2006 at 2:08 pm and is filed under General, MSM, art, culture, business, radical chic. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.