Sunday, October 21, 2007

Someone tell me how low NYT shares should go to make it worth buying

Watching the decline of shares in the New York Times company raises, for me along with many other observers, no doubt, a question as to how low the shares should go before becoming undervalued and a bargain. Lacking voting rights, how much should they be worth? The market has pretty clearly judged that the long-term bargain of American newspaper families - you don't have voting rights, but we will run the business side of the paper as if you did, and exercise the voting rights only for purposes of maintaining editorial control - is dead at the Times and that the family is fiscally incompentent, fiscally imprudent, and rapacious at the expense of shareholders. All that in the context of the deep crisis of the business model of American newspapers. The question is, is there any level at which the shares become worth holding?

Another way of putting that question is whether there is any alignment of interest between family shareholders, or some important part of them, and nonvoting public shareholders. Or whether the cost of capital becomes sufficiently high that some accommodation with public shareholders must be made. Are there any scenarios for actually taking the company private, and would those scenarios work to the benefit of someone who bought in late, and at what price?

Heck if I know. Sorry if you read this post thinking I would say something about that by way of an answer to my question. But I would be very curious about what sophisticated media market observers think.


Anonymous said...

Hello Sir:

Wandered over here from Instapundit.

As of Friday, the market cap of the NYT was $2.26B. Their real estate (the NYT building and other holdings) probably have a value of $1-1.5B, and their other assets (Boston Globe, IBT, NESN, are harder to value, but may be worth ~$1B. Then throw in the value of the NYT itself. Add it all up, and by book value, the NYT is already undervalued.

However, as you point out, without shareholder control, the value of the the assets under management cannot be unlocked to the shareholder. As a current shareholder, the stock only has value for two reasons - dividend, and potential buyout.

A potential buyout (by the controlling families) will probably not happen anytime soon, as they already control the company, and really have no reason to tie up more capital with no tangible benefit, so I wouldn't assign any value to that.

That leaves the dividend. The dividend is 23 cents a share. At it's current share price, that would correspond to a annual yield of 5.15%, which is comparable to cash holdings. Clearly, not a bargain yet.

So, when would I start buying? I personally am very pessimistic about the NYT. Pinch Sulzberger has made it very clear in his personal statements that he intends to employ the NYT as a vehicle for his political goals (read his recent speech at Tufts Univ.) I expect him to sell assets and take on debt to continue the NYT without significant change.

Finally, the answer: I would have to have the stock fall to $10 dollars to buy, for a ~10% return, to compensate for the equity risk and uncertain dividend. But since many more people are more optimistic about the NYT than I, I don't think it will fall to that level. Personally, if I had to invest in the NYT, I would rather buy the NYT bond, which is a BBB bond. In the event of a NYT bankruptcy, the bondholders would be paid first.

Anonymous said...

(After giving it a little more thought).

For someone with a decent chunk of change, perhaps they could justify buying the NYT stock at a higher price, and sell covered calls to extract a little more money out of their stock. But options trading is not for the weekend investor - I certainly wouldn't try it with my own money.

Again, keep in mind, the whole industry is under trouble. Advertising is shifting away from traditional media, certain revenue sources have been decimated by Craigslist. The NYT is under additional pressure from the WaPo and the WSJ, which have significant non-print revenue streams. Escaping online won't help, as online news is already very competitive, with strong foreign contenders (Guardian, etc), and other media types(CNN, BBC).

I expect the NYT to have a long, slow, steady decline. There are ways to make money from this, but just be careful.

Anonymous said...

I think you give the Sulzbergers too much credit when you call them rapacious - I don't think they have the wit to steal. Incompetent and imprudent, now that's more like it.

I agree with the previous commenter that there are (or will be) ways to make money from NYT, but it is pathetic that none of those ways has anything to do with the company's business model - it's all financial engineering.