poised to swallow
New York Times
looks vulnerable on the eve of what could be the last great newspaper war in New York City.
Shares of the Gray Lady hit 10-year lows Wednesday after a Wall Street analyst downgraded the stock to a sell, citing the potential for a recession to weigh on advertising from luxury goods retailers, which make up 28% of the company's national advertising revenue.
In another sign of weakness, a memo to staff members at the company's flagship newspaper said the publication is cutting newsroom jobs amid a hiring freeze. This at a time when its chief rival,
The Wall Street Journal
, is hiring as its publisher prepares to duck under the News Corp. umbrella.
News Corp. CEO Rupert Murdoch, who struck a deal to acquire
's publisher this year, has said he plans to beef up its political coverage, signaling that the right-wing media mogul, who makes no secret of his disdain for the
and its perceived liberal bias, is hell-bent on burying the Gray Lady on her own turf.
Murdoch also has said he likely will eliminate subscription fees from
's Web site, suggesting that he wants to tap global audiences beyond the Wall Street-oriented investment crowd that is happy to pay for the newspaper's high-brow reporting.
The onslaught could not come at a worse time for
, which has been reeling along with the rest of its newspaper publishing counterparts from the rise of the Internet and a downturn in the U.S. economy that threatens to get worse before it gets better.
In addition to weakness in the luxury goods sector, Bank of America analyst Joe Arns said in a research note that The Times is also vulnerable to the pain in financial services wrought by the subprime lending debacle, because roughly half the company's revenue comes from finance towns New York City and Boston. Banks like
have taken gigantic writedowns, and many observers say that more trouble for the industry is in store.
Arns said a recession could result in a 20% gap or more between the company's forecast for 2008 earnings before taxes, depreciation and amortization and Wall Street's expectations.
Such concerns are what ultimately convinced members of the Bancroft family, Dow Jones' controlling shareholders, to succumb to the $5 billion buyout offer from Murdoch -- an unsavory buyer in the eyes of journalism purists for the publisher of a newspaper that was incorporated as a public trust. The family initially opposed the offer, but Murdoch ultimately won enough support from its members to claim his prize.
Meanwhile, New York Times is also a family-controlled company, and it has felt the wrath of public shareholders amid its refusal to sell troubled assets, like
The Boston Globe
, while its stock has languished.
The Ochs-Sulzberger family trust controls the company by holding its Class B shares, which make up only 0.6% of its total shares outstanding. Meanwhile, they control 70% of the company's voting rights, while the vast majority of shareholders control just 30% of the votes.
At its annual shareholders meeting last spring, roughly 42% of the company's Class A shareholders, the public investors who own the vast majority of its equity, voted to withhold support for the Times' four Class A directors. That marks an increase from the 30% that voted to withhold support last year.
The results amounted to a rebuke of the Times from its institutional shareholder base, which was led by Hassan Elmasry, the portfolio manager with Morgan Stanley Investments. He criticized the company's management, saying it's unaccountable for its mistakes due to its lopsided governance structure. Elmasry called on the company to abandon the dual-class share structure.
The Class B shareholders, who are allied with Times chairman and publisher Arther Sulzberger Jr., 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. Later, Elmasry sold his fund's 7.2% stake in the company.
Meanwhile, if shares of New York Times continue to fall, more public shareholders may be inclined to pick a fight with the controlling family unless it takes what could be painful restructuring steps to boost its stock price.
For now, the Times is cutting about a dozen support positions in its newsrooms, according to media reports.
"This staff reduction does not include any journalists, nor any widespread buyouts, as has happened in the past," Executive Editor Bill Keller wrote in the memo, according to
. "We put into place a hiring freeze several weeks ago, and except for those jobs that are critically important to our future ambitions, we will be trying to fill their positions internally."
Shares of New York Times closed down 12 cents, or 0.7%, to $16.71.