The Tribune Co. got into trouble, ultimately seeking protection through bankruptcy, because it wasn’t able to sell off assets fast enough, or at high enough prices, to service debt. The New York Times, though carrying a far more management debt load, wasn’t going to risk making similar mistakes.
Upwards of 90 percent of the Times Co.’s revenue comes from its news media businesses. The relative lack of diversification, and simultaneous dependence on advertising in the currently weak market, has squeezed operating profits heavily. As of the end of September, the Times held $46m in cash against debt of approximately $1.1billion on the books. A $400m credit line is expiring in May and another $250m in credit is set to lapse in 2010.
To better manage the financial situation, the company is looking to raise upwards of $200m in a sale-leaseback of its Manhattan headquarters. They are also investigating the sale of their interest in the company that owns the Boston Red Sox.
The loan from Carlos Slim (Helú was his mother’s maiden name) is designed to provide more near-term room to maneuver. Times Co. CEO Janet Robinson said it will give the company “increased financial flexibility.”
The loan is being made through Banco Inbursa and Inmobiliaria Corsa, two companies principally controlled by Carlos Slim and his family.
Inked as number two on Forbes list of the world’s richest people in 2008, Carlos Slim Helú is estimated to be worth as much as $60billion. Born in Mexico in 1940, the son of a Lebanese immigrant, he amassed his fortune across a variety of industries including retail holdings (which he inherited), tobacco, soda bottling, financial services and most prominently, telecom.
The watershed moment in his success was arguably in 1990. That year, Slim’s Grupo Carso, together in partnership with SBC, France Telecom and private investors, won the bidding process to privatize Mexico’s telephone service, Telefonos de Mexico. Grupo Carso had approximately 10.4% in the initial joint venture, Telmex.
A Decade later, in 2000, the Telmex cellular business evolved into America Movil, one of the leading wireless carriers across Latin America.
Telmex and America Movil combined dominate the telecom landscape in Mexico. A good part of Carlos Slim’s success has stemmed from leveraging such substantial power. As case in point,the Wall Street Journal detailed a story where, in 1990, he acquired one of the leading copper cable suppliers for the Mexican telecom industry. Telmex’ purchases were thereafter directed to this company, effectively crushing the competition by exclusion (the competitors eventually sold out).
While sometimes heavy handed, Slim also seems to take a forward looking approach to his investments. Principles of Grupo Carso spelled out on Slim’s personal website emphasize patience and optimism. He says things like “There is no challenge that we cannot overcome if we work together, with clear objectives and knowing the tools we have at our disposal,” ; “Firm and patient optimism always yields its rewards. ” and “All times are good for those who know how to work and have the tools to do so.”
In recent years, Slim’s investment reach has crossed borders and expanded into international markets. Typically, he’s bought blocks of stock as a semi-passive value investor (e.g., despite large holdings, he seeks no direct management involvement or board seat). He was a major shareholder in MCI when Verizon acquired it. He has also put money into Saks and holds a 1% stake in the company that runs the Independent newspaper in the U.K.
In early September, Slim took his first bite out of the Times Co. He added a 6.4% stake in the New York Times Co. to his portfolio. His 9.1m shares were bought at a price above $13 a share. The buy was characterized as a chance to get a piece of a great company at a good price. An “attractive value” and a “financial investment.”
As of this week, however, that initial investment had lost half of its value. With the new debt deal, which has warrants attached, Slim is doubling down.
Based on the Times’ disclosures , a prospectus now on file with the SEC, and an 8K filed today, each of Slim’s companies, Banco Inbursa and Inmobiliaria Carso, will contribute $125m. The senior unsecured notes will be due in 2015 and carry a 14.053% percent annual interest payment. Payments will be semi-annual.
The Times’ has the right to prepay the notes beginning in 2012, subject to some premiums. If paid off after just three years, the Times will pay 105% of principle, plus accumulated interest. If paid in 2013 to 2014, they’ll pay 102.5%. There’s no penalty for early payment in the final year.
If there is a change of control, it will trigger a “repurchase right” wherein Slim can require full repayment almost immediately.
The Times’ also represents that it will not engage in a “sale and leaseback” transaction unless debt secured by the property is guaranteed. The sale and leaseback of the company’s headquarters in an amount up to $225m is exempted.
In addition to the interest and debt covenants, the notes carry detachable warrants providing the right to buy up to 15.9 million shares of the Times Co.’s Class A stock at a strike price of $6.3572 a share. If converted, the Warrants would balloon Slim’s ownership stake to near 17% of the company. That would make him the company’s third largest shareholder behind only the Ochs – Sulzberger family, which has controlled the property for more than a century, and hedge fund,Harbinger Capital Partners which held near 20% in early November.
Because of a classified stock structure that provides “Super voting rights” to a privately held Class B stock, the Ochs- Sulzberger family has voting control of the company well beyond their percentage of equity. The family’s 88% stake in the Class B stock gives them vote to elect 70% of the board. Harbinger Capital and Firebrand Partners were able to take two board seats last March after pushing a potential proxy fight to the brink.
Slim won’t have a board vote per the terms of the new loan.
Arturo Elias, director of Inmobiliaria Carso, one of Carlos Slim Helu’s two companies contributing the funding, said in a statement: "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."
In interest, Slim will likely make upwards of 20% more than the Times was paying under its current line of credit but in Slim, they get a noteholder whose sizable equity stake gives him a far greater interest in seeing the company prosper than just a creditor.
His money isn’t a long term solution to problems plaguing print news companies but it should give the Times Co. some time to both wait out the ad market’s eventual recovery and continue evolving its digital strategies.
Even as print margins as pressured, the Times remains a leading brand and audience draw both online and off.
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