Mexican Billionaire to Lend $250 Million to New York Times Co.
Wednesday, January 21, 2009
The struggling New York Times Co. has received a $250 million loan from a prominent shareholder who happens to be the world's second-richest man -- Mexican telecommunications titan Carlos Slim Helu.
The money comes at a steep interest rate: 14 percent.
In return, Slim gets warrants that are convertible to Times Co. shares, the company said Monday. Slim already owns 6.9 percent of the paper and its other businesses, such as About.com. When he exercises the warrants, he will own up to 17 percent of the common shares outstanding, making him the company's second-largest shareholder behind its chairman and publisher, Arthur Sulzberger Jr.
Like most newspapers, the Times has fallen on tough times, as readers and advertisers flee to other platforms and pastimes. And, like some others, the Times Co. placed very expensive bets on strategies that didn't work out.
The loan gives Slim no greater control of the company and no seats on the board. Like some other newspaper companies, including The Washington Post Co., the Times Co. is publicly traded but privately controlled through family-held shares of super-voting stock. In the case of the Times Co., the Ochs-Sulzberger family holds the controlling votes.
The 68-year-old Slim -- his mother's maiden name was Helu -- has a net worth estimated by Forbes at more than $60 billion, second only to that of super-investor Warren E. Buffett (a Post Co. director). Slim was the chief beneficiary of Mexico's privatization of its landline telephone system. Unlike in many other nations, where government monopolies were broken up and auctioned off, Mexico privatized by largely turning over ownership of the phones to one company, trading one monopolist for another.
Slim also has holdings across Central America that include mobile phones, grocery stores and industrial operations. A popular saying in Mexico goes, "You can't go a day without putting a peso in Slim's pocket."
"We believe that with the strength of the New York Times brand, its national and international reach, its potential for digital expansion and most of all, its world-class news and information, the company will continue to be a leader in the media industry," Arturo Elias, director of Inmobiliaria Carso, one of Slim's companies, said in a statement.
Newspaper analyst John Morton said the Times Co., which carries about $1.1 billion in debt, is much better off than rival Tribune Co., whose $13 billion in debt forced the company to seek bankruptcy protection in December. Still, the Times Co. has $400 million in debt between two revolving facilities, the first of which comes due in May.
"Sure it's painful to have to borrow money at that kind of rate, but there's not very much money available out there," Morton said. "They may not have had any choice."
Slim contacted the Times Co. about extending a loan last fall, Times Co. spokeswoman Catherine Mathis said yesterday.
How did the Times Co. come to this point?
In the late '90s, Sulzberger launched a grand strategy to take the Times global, beginning with an attempt to dominate New England. The company paid $1 billion to buy the Boston Globe and Worcester (Mass.) Telegram & Gazette as well as a stake in the New England Sports Network, which made the Times Co. a partial owner of the Boston Red Sox.
The company focused its attention and resources on the Times brand, seeking to become the world leader in news and analysis across every platform. It also sold non-Times businesses, such as Golf Digest magazine, that provided a diverse flow of revenue.
Today, more than 90 percent of the Times Co.'s revenue comes from its news media division, which includes the Times, the Globe and other newspapers and Web sites, according to the company's third-quarter earnings report. That's a heavy dependency on advertising in a climate in which its ad revenue dropped 14 percent in the third quarter of 2008, compared with 2007.
Overall, Times Co. third-quarter revenue was down 9 percent, while operating profit dropped to $10 million from $28 million. At the same time, the Times's Web site drew nearly 21 million unique visitors in November -- nearly twice that of its closest rival, the Los Angeles Times.
As a result of the Times Co.'s lack of diversification, the overall declines in advertising and the credit squeeze, the company has resorted to unanticipated measures to keep cash flowing.
In addition to cost-cutting, which has included layoffs, the Times Co. hopes to raise some $225 million by borrowing against its new Manhattan skyscraper headquarters or through a sale-and-leaseback deal. The company also is shopping its stake in the Red Sox.
The company's woes have driven down its stock price, making it vulnerable to outsiders. Last March, Harbinger Capital hedge fund bought enough Times Co. stock to force itself onto the board, winning two seats.
The Times is carrying about $1.1 billion in debt and has about $46 million in cash on its books, according to its third-quarter earnings report. (The company sold its nine television stations in 2007 to raise $575 million in cash to pay down debt.)
The 14 percent interest rate on Slim's loans is high, but not unusual for the current credit freeze. In the fall, the only commercial loans the Big Three automakers could get came with 20 percent interest.
Nevertheless, it is more than just the times -- the secular decline in the newspaper industry combined with a recession -- that is forcing the Times to accept such steep interest rates on loans. It is also the condition of the Times.
"I think it's a combination of all of the above," Mathis said.