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New York Times Braces for Board Battle

The Ochs-Sulzberger family managed to cling to their control over the New York Times (NYT - Get Report) last year, but they may not be able to keep dissidents off the publisher's board of directors this time around.

Scott Galloway of investment firm Firebrand Partners, with financial backing from activist hedge fund Harbinger Capital Partners, has hired D.F. King, a proxy solicitation firm, to press its case with New York Times shareholders in the lead-up to the company's annual meeting on April 22, according to a source familiar with the matter.

Meanwhile, a consortium of investors including Harbinger -- already the company's largest nonfamily shareholder -- have been adding to their stake. The firm disclosed in a regulatory filing late Monday that it has lifted its ownership in New York Times to 19% of shares outstanding from 16% -- giving it a stake on par with that of the Ochs-Sulzbergers.

Galloway has said in regulatory filings that he plans to nominate himself, along with three others, to represent public shareholders on The Times' board and push the struggling publisher in a new direction.

For its part, the company has nominated its own directors for Class A shareholders in a preliminary proxy filing with the Securities and Exchange Commission and hasn't included the Harbinger nominees. It pressed shareholders to spurn overtures from Galloway and his partners.

"Our Board of Directors unanimously recommends a vote for the election of each of our Board's nominees on the enclosed white proxy card and urges you not to sign or return any proxy card that you may receive from Harbinger," said Times chairman Arthur Sulzberger Jr.

Sulzberger's family controls the company through a dual-class share structure. Its members effectively hold all the company's Class B shares, which have the voting power to elect nine of the 13 directors on its board even though they amount to a tiny slice of the company's shares outstanding.

The Class A shares, which are mostly owned by the public, elect just four directors. Such arrangements are common in the media industry, where moguls like to shelter their long-term editorial mission from the short-term whims of Wall Street.

Outsider Influence

Last year, Morgan Stanley Investments fund manager Hassan Elmasry urged shareholders to vote against the company's Class A nominees to its board in support of his campaign to abolish the dual-class structure. Roughly 42% of the public shareholders voted to withhold support, marking an increase from the 30% that voted against the company last year.

The results amounted to a rebuke to the Times from its institutional shareholder base. But the Class B shareholders were unanimous in their support for the company's nine Class B directors, rendering Wall Street's revolt against the company's corporate structure as little more than a symbolic gesture. Last fall, Elmasry gave up and sold his firm's 7.2% stake in the company.

Now, Galloway has picked up where Elmasry left off. While he's not supporting an end to the company's dual-class share structure, he is proposing dramatic changes in the company's strategic direction that likely would include a sale of what he considers noncore assets, like The Boston Globe.

Unlike Elmasry, Galloway's investment group isn't a long-term holder of Times shares. His backer, Harbinger, began accumulating its stake in December. Also, its position in the company is much larger than Elmasry's, and it's growing, suggesting that Galloway and his partners smell blood. Shares of the publisher are up 11.7% so far this year, despite a sharp deterioration in the company's outlook amid a crushing economic downturn for newspapers.

A spokesman for Galloway declined to comment for this story. A spokeswoman for The New York Times, Catherine Mathis, would not rule out a change in the company's preliminary proxy filing to include the Harbinger nominees.
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