Bleeding Times

Just two days ago, we explored the Chinese expression 富不过三代 (fu bu guo san dai) Wealth Does Not Pass Three Generations, a generational look at the how wealth passes from generation to generation.

Let's continue with that theme with a look at Bleeding ‘Times’ Blood, an article about the heirs to the New York Times.

This could be the story of any aspiring artist, but David Adam Ochs Golden isn’t just any folk-rocker carving out his own circuitous path in life. He’s a once and future owner of the New York Times Company, one of the 27 members of the fifth generation of the Ochs-Sulzberger family who will inherit the 157-year-old newspaper as it’s passed down from their forefathers—including Golden’s father, Stephen Arthur Ochs Golden, former president of the paper’s forest-products division and the cousin of Times chairman and publisher Arthur Ochs Sulzberger Jr.

From an estate in Southampton, 82-year-old Arthur Ochs Sulzberger, the patriarch of the family and father of Arthur Jr., has watched as the company he bequeathed to his son has taken a perilous turn. A significant portion of the paper’s troubles can be attributed to the general difficulties of a business model based on print advertising in the Internet age. But the younger Sulzberger’s management stumbles have helped to speed the company stock price’s decline to around $15 a share from $45 at the start of the century.

First, there was Sulzberger’s decision to use the paper’s excess cash flow when it was making money in the nineties to buy back stock—a practice meant to improve investor confidence—instead of acquiring new properties that could have hedged against print losses. In the last decade, the Times bought back $3 billion of its own stock—more than the company’s present market value. Now that money is gone, and the company has sunk from surplus to deficit. (Sulzberger himself has acknowledged that the buybacks were “the stupidest thing” he’s done.)

Meanwhile, the company continues to suffer the failed strategic investments of Sulzberger’s father, such as the Boston Globe, which, along with another Times-owned paper, led to an $815 million write-down in 2006. Many at the Times believe Sulzberger Jr. hangs on to the Globe only out of deference to his father.

People familiar with the family’s trust say it is surprisingly undiversified, with a high proportion in Times stock. The family’s collective and individual shares are valued at a third of what they were worth in the late nineties. One Wall Street executive briefed on the family’s holdings estimated that the central trust is now worth somewhere between $270 million and $300 million.

In order to keep the family—and shareholders—happier in these lean financial times, Sulzberger has quietly ramped up the amount of cash they receive in a quarterly cash dividend. This, more than the sale of stock, is the source of the Ochs-Sulzbergers’ working wealth. Sulzberger and CEO Janet Robinson raised the dividend by an extraordinary 31 percent last year—even as the stock price declined. Of the $132 million a year the paper gives to shareholders, about $25 million of it now goes directly into the coffers of the Ochs-Sulzberger trusts.

But the payoff exacts a harsh price: The company is going deeper into debt to pay the high-yield dividend. In the last four quarters, the paper has made less money than it has paid in dividends.

‘My family’s dedication to this company is fundamental and enduring,” Arthur Sulzberger declared during Elmasry’s attack in 2007. Indeed, the Sulzberger family’s dedication to the Times has been the gold standard among newspaper dynasties over the last 30 years. The family is steeped in mythology, down to the name of the family trust, Marujupu, shorthand for the first names of the four children of the late matriarch Iphigene Ochs Sulzberger: Marian, Ruth, Judy, and Punch (in 1929, the explorer Admiral Richard Evelyn Byrd actually named one of the glacial hills in Antarctica after them, Marujupu Peak, not far from Ochs Glacier and Mount Iphigene).

After Iphigene died, in 1990, the families of her four children decided to fuse their fortunes together in a trust designed to protect the newspaper. By accepting the deal, they gave up the right to sell off controlling shares in the company, which added up to an estimated $1 billion in potential wealth. But it was worth it to try to preempt the phenomenon that trust-fund managers everywhere know to be true: Families fracture and fight and eventually break up over money.

While no one accuses the Sulzbergers of ostentation—“We’re not a family into yachts,” one family member told the trust lawyer, Theodore Wagner—they do live off the family money, residing in Upper East Side townhouses or maintaining country homes that wouldn’t normally be afforded by their day jobs. Beyond that, they are highly invested in their Times identity. “Their raison d’être,” observes one Times veteran who knows several members of the family, “is that they’re members of the Sulzberger family.”

One thing that would cause the fifth generation to take a sudden interest in the family business is a decrease in trust income. “Once that dividend is cut, then all hell will break loose,” says a former Times executive. “Because that’s what the family lives on. Then it’s over. It’s going to unravel. They’re going to be forced to look for external professional management to run that company.”

So far, no one has been so bold as to openly question Sulzberger’s management, but it’s worth noting that it was a 42-year-old member of the Bancroft family, Elisabeth Goth Chelberg, who became a key agitator for selling The Wall Street Journal to Rupert Murdoch. After her mother died, she came to see with cold clarity the withering value of her inheritance. “On the one hand it is quite sad,” she told a newspaper, “but on the other it was the only reasonable thing to do.” Says a Times staffer who knows Sulzberger, “It seems completely reasonable that somewhere embedded in this [Sulzberger] family is someone saying the same thing Elisabeth is saying: ‘What the f**k is going on with my investment, Uncle Arthur?’ ”

Bleeding ‘Times’ Blood was written October 5, 2008. Here is current chart.

New York Times NYT Daily Chart



click on chart for sharper inage

Not too long ago the family had an offer for $5 billion. Today the market cap of the Times is $619 million.

According to Yahoo Finance, the Times has $46 million cash on hand and $1.13 billion in debt yet it still continues to pay a 5.70% dividend. Paying that dividend is a mistake, assuming the goal is long term survival. And speaking of survival, whether The New York Times survives depends on its ability to be able to service its debt and how quickly it can stop bleeding cash. Judging from share price, the market finds it questionable.

One thing's for sure, however, neither the business, nor the family adapted to changing times.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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