With the prospects of a rich buyout looming at
, shares of its newspaper counterpart,
New York Times
, have surged on speculation that the days of its lopsided corporate structure are also numbered.
But while the old order appears to be crumbling, the Gray Lady isn't necessarily next in line.
Like Dow Jones, publisher of
The Wall Street Journal
, New York Times has a family -- the Sulzbergers -- that controls the company through ownership of a separate class of stock that gives them far more voting power than public shareholders.
The arrangement is designed to ward off takeover attempts, thereby allowing New York Times to enjoy the fruits of the public market while still preserving its editorial standards and independence in the hands of its original owners and their progeny, who view themselves as protectors of a public trust that is essential to the health of American democracy.
Such sentiments hold little appeal on Wall Street, where cash is king and the flood of digital communications is giving rise to a new age of active shareholders demanding their rights.
Furthermore, the rise of the Internet, and the wide array of information sources that comes with it, is breeding a perception that the principles of journalism that rose to prominence in the 20th century are becoming outdated and irrelevant.
"In this environment, the dual-class structure will no longer be able to shelter companies that are performing badly," says Richard Dorfman, managing director with Richard Alan Inc., a financial advisory and investment firm focused on the media industry.
"It doesn't matter what the law says. If a huge offer is on the table, there's no way a small minority of controlling shareholders can keep a huge majority of public shareholders from reaping a bonanza," he adds.
In this setting,
CEO Rupert Murdoch appears to have cut through Dow Jones' corporate structure with a $5 billion buyout offer, a lofty valuation that looks way out of reach for a newspaper publisher in today's market. While Dow Jones' controlling family, the Bancrofts, initially resisted the bid, they're now capitulating in acknowledgment of the publisher's weakness.
Shares of New York Times have jumped 13% since Murdoch's offer was made public May 1. But at Times, no Murdoch-like offer is on the table, and while the publisher enjoys the brand of world's newspaper of record, there is no evidence that such any buyout bid looms.
The former CEO of
, Jack Welch, has expressed an interest in buying
The Boston Globe
-- New York Times' worst-performing asset -- and the former CEO of
, Hank Greenberg, reportedly approached others about cobbling together a bid. So far, nothing has come to fruition.
New York Times has consistently shown an unwillingness to entertain such options. The company spurned overtures from Welch, prompting a backlash from Wall Street that culminated in a publicity campaign from Morgan Stanley Investments fund manager Hassan Elmasry calling for an end to the Times' dual-share structure.
In sharp contrast to Dow Jones CEO Rick Zannino, who has been all but silent throughout Murdoch's buyout campaign, New York Times CEO Janet Robinson has been an outspoken defender of the company's corporate structure and its unwillingness to consider strategic alternatives.
"We have no intention of opening any of our doors to the action that is tearing at the heart of some of the other great journalistic institutions of our country," said Robinson last December.
At the time, she was presumably referring to last year's sale of
and the efforts to sell
, both of which lacked a dual-class share structure and were pushed onto the auction block by disgruntled shareholders. But Robinson just as easily could have been talking now about Dow Jones, which is on the verge of becoming part of a global media conglomerate that has a long history of flouting the editorial practices of
Steven Davidoff, a professor with Wayne State Law School, says that unlike Zannino, Robinson is free to speak out in these situations because she has the blessing of the company's board of directors. New York Times' board is effectively controlled by the Sulzbergers, since the family elects nine of the company's 13 directors.
At Dow Jones, the board is more independent of the Bancrofts, and its directors declined to even consider Murdoch's offer until the family expressed a majority of support for exploring it. So, the board was silent, leaving Zannino muzzled.
At Times, the Sulzberger family controls the board through a single trust that is required to vote unanimously, so the divisions that emerged within the Bancroft clan could not occur at New York Times. Furthermore, the Sulzbergers are more actively engaged in the
management, principally through Arthur Sulzberger, Jr. -- the company's chairman and the publisher of its flagship newspaper. The Bancrofts play no part in Dow Jones' operations.
"The Sulzbergers are a more cohesive group that is closer to the company and more solidly opposed to relinquishing control," says Davidoff. "Through their arrangement, Arthur Sulzberger has effective control. If he doesn't want to sell, he doesn't have to sell."
At New York Times' annual shareholders' meeting, roughly 42% of the company's Class A voting shareholders -- the public investors -- withheld support from the Times' four Class A directors. That marked an increase from the 30% that voted to withhold support last year.
The results amount to a rebuke to Times from its institutional shareholder base. But the Class B shareholders -- dominated by the Sulzbergers -- were unanimous in 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 at this point.
"Only the trustees of the Ochs-Sulzberger family have the ability to change
the company's corporate structure, and we are unanimous in our commitment to retain it," Sulzberger said at the meeting.
Dorfman says that unlike the Bancrofts, the Sulzbergers would "move heaven and Earth" to stay in control of New York Times, but he is doubtful that they'll be able to retain control over it as a public company if business troubles continue.
"If they see the handwriting on the wall, they will move to finance a buyout of the company and take it private themselves," says Dorfman. "But if that happens, other buyers could try to make offers for it that they can't compete with, and there could be a nasty showdown with shareholders. Either way, it all bodes well for the stock price."