By Frank Ahrens
Washington Post Staff Writer
Friday, February 1, 2008

The New York Times Co. and Richmond's Media General reported disappointing fourth-quarter and full-year 2007 earnings yesterday, exacerbating conditions that have brewed shareholder revolts at both companies.

But the companies' tightly held family ownership structures may ultimately prevent hostile moves by outsiders, analysts say.

Firebrand Partners and its hedge-fund partner, Harbinger Capital, began buying stock in the Times Co. just before Christmas and now own about 5 percent of the company. They have proposed running four directors for the Times Co. board at the company's April shareholders meeting. They think the company has underperformed -- Times Co. stock has lost two-thirds of its value over the past four years -- and that it is missing opportunities for more digital revenue.

In Richmond, Harbinger has proposed three directors for election to Media General's board at the company's April meeting. Media General, which owns the Richmond Times-Dispatch and Tampa Tribune, among other newspapers and broadcast stations, has seen its stock price plummet along with its advertising revenue. Harbinger owns about 18 percent of Media General and has 3 percent more promised through stock swaps, Media General chief executive Marshall N. Morton said in an interview yesterday.

The moves against the Times Co. and Media General are unrelated.

Both the Times Co. and Media General have dual-class stock structures that allow the family owners to maintain control of the companies through super-voting power, and they generally withstand shareholder revolts. The Times Co.'s Ochs-Sulzberger family thwarted a bare-fisted proxy attempt by institutional shareholder Morgan Stanley last year that tried to abolish the dual-class structure.

In contrast, Firebrand and Harbinger are taking a gentler approach, telling Times Co. Chairman Arthur Sulzberger Jr. in a recent letter that they would keep the dual-class structure and seek only the four board seats available to outside shareholders. The family has the right to appoint nine of the Times Co.'s 13 directors.

"They can't force the issue because they have no leverage," Benchmark analyst Edward Atorino said of the Firebrand-Harbinger bid for Times board seats. "They're taking the approach, 'We're nice guys, we want to come help you out.' "

Firebrand is run by Scott Galloway, founder of e-tailing site RedEnvelope and a business professor at New York University. Harbinger invests in distressed companies for its parent company, Harbert Management.

Galloway thinks the Times is a "world-class brand" whose value has slipped because it has failed to move urgently enough into the digital delivery of its content, according to a source close to the situation who spoke on the condition of anonymity because the process is ongoing. If Galloway's directors are elected, they would urge the Times Co. to sell its non-core assets, such as its share of the Boston Red Sox, and buy more digital properties, the source said.

Neither Harbinger nor Firebrand would comment.

Yesterday, the Times Co. reported that fourth-quarter earnings from continuing operations in 2007 were down (44 cents per share) from the comparable period in 2006 (46 cents), with revenue and profit also down. Growth at the company's About.com and other digital properties was offset by the continued slump in newspaper advertising.

At Media General, fourth-quarter earnings were down nearly 70 percent (43 cents) compared with the same period in 2006 ($1.33). The company's Florida papers have been hit hard by the state's housing crash, and the company has significant tax and insurance costs, as well.

At the Times Co., director nominees must be approved by the board's nominating and governance committee before they can be put before the shareholders in April. The Times Co. said it would consider the Firebrand-Harbinger bid.

But in a research note on Tuesday, Lehman Brothers analyst Craig Huber wrote that he expects the committee to recommend against the Firebrand-Harbinger nominees. Times stock closed up 9 cents per share yesterday at $16.74.

Media General has a similar committee, and it would not include the Harbinger nominees for election to its nine-member board on the shareholders proxy form, Morton said. Harbinger would have to mount its own, independent campaign to pitch its director nominees to other Media General shareholders, Morton said. Six of the nine directors are appointed by stockholders who hold controlling shares, mostly members of the founding Bryan family. Shares of Media General closed down 45 cents at $19.12 yesterday.

Morton said he noticed last summer that Harbinger owned 9 percent of Media General stock. He called the company, as he said he would any major shareholder, but Harbinger never called back. Finally, on Wednesday, Morton said his company got a letter from Harbinger Senior Managing Director Philip Falcone saying he wanted to talk. In the letter, Falcone proposed changes to Media General's corporate governance and strategy.

"We're puzzled" by Harbinger's gambit, Morton said. "They didn't have to buy the stock to give us good ideas."

Morton said that even if Harbinger succeeds in seating its three directors on Media General's board, "I don't think their new directors would magically convert the six other directors."