All the Times That’s Fit to Buy

02/27/2008 12:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of the Skousen High-Income Alert, says the attempt by dissident investors to force changes in the venerable New York Times may help long-suffering shareholders.

Rupert Murdoch last year did the impossible by buying out the "takeover-proof" Wall Street Journal [and its parent company, Dow Jones]. Could a hedge fund do the same to the stodgy, deeply undervalued, Sulzberger family-controlled New York Times?

A dissident investor group formed by Firebrand Partners and hedge fund Harbinger Capital Partners is [trying] just that, and it may work. Harbinger has increased its stake in the New York Times Company (NYSE: NYT) to [27 million shares or 19% of the company]. Harbinger, working together with Firebrand founder Scott Galloway, a New York University business professor, has criticized the Times for not aggressively building up its digital businesses.
 
After meeting with New York Times management, the group nominated four new candidates to its 13-member board. (The dissidents have hired a proxy solicitation firm to win support among shareholders for its own slate of four directors—Editor.)
 
Chairman Arthur Sulzberger is not about to give in, however, and he has nominated two of his own candidates to the board.  [The Times’ management nominated Dawn Lenore, chief executive officer of drugstore.com, and] Robert Denham, the former chief executive of Salomon Inc., and a partner in law firm Monger, Tolls & Olson, whose co-founder Charlie Munger is [vice chairman of] Berkshire Hathaway and a chief lieutenant of Warren Buffett.
 
By any standard financial measure, the New York Times Company is cheap. The price of the establishment newspaper has fallen by 60% in the face of a bear market in print media. Five years ago, the company’s stock was selling for more than $50 a share.

While revenues of around $3.2 billion have failed to climb, costs have risen and earnings have fallen. As a result, the company lost money last year. But earnings lately have recovered a bit, and the stock is selling for around 13x trailing-12-months earnings. 
 
Meanwhile, the company continues to pay a rising dividend, now at 23 cents a share per quarter, or 5.4% annually. 
 
The stock is rising. Let’s buy at today’s price (it closed above $19 Tuesday—Editor) and set a protective stop at $18.50 a share. For those more adventuresome, consider buying the July $22.50 calls (NYT-GX). 
 
Who knows? Maybe this potential shake-up at the world's establishment newspaper will improve its editorial page.

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