Arthur Sulzberger, Jr. & the rejection of Jack Welch

The question any New York Times shareholder should ask

today is, if in spurning Jack Welch’s generous offer of $500

million for The Boston Globe and the Worcester Telegram

& Gazette, did Arthur Sulzberger, Jr., fail to live up to his

fiduciary responsibility.

The answer appears to be yes because as 2006 turned into

2007, and the subsequent years followed, Sulzberger must

have realized he’d never see such a generous offer again.

Did he really think he was going to recover what the company

paid for The Globe -- $1.1 billion in 1993 – by refusing to sell

to the former CEO of General Electric?  Was that a credible

point of view in 2006?

To put Sulzberger’s rejection of Welch’s offer in perspective,

it’s important to realize that in 2006, Sacramento, Calif.-based

McClatchy purchased Knight-Ridder’s 32 newspapers, which

included The Philadelphia Inquirer, San Jose Mercury News,

The Miami Herald and The Charlotte Observer, for $6.5 billion.

That’s about $200 million for each newspaper, if you calculate

the valuation by dividing the purchase price by 32.  Admittedly, 

it's simple.

But compare it to Welch’s offer – about $250 million per

newspaper if you divide his offer by two – and you seriously

have to wonder what Sulzberger was thinking.

Instead of maximizing the value of a distressed business – the

clarion call of any chairman of a publicly owned company – by

picking up nearly half the purchase price for The Globe and the

Telegram & Gazette in Welch’s offer, Sulzberger, seven years

later, settles for less than 7 percent from the owner of the Boston

Red Sox, John Henry.

It almost makes you wonder if he’s a closeted Rex Sox fan

or just incompetent.

It doesn’t take a genius to look at revenue trends and determine

that your business is sooner headed down the toilet than it is

the top shelf of media properties.  Once you know this, you

either invest heavily to turn it around or you sell the business

as quickly as possible.

You certainly don’t hold onto it and do nothing, which is

what Sulzberger did.

If ever there should have been a Tiffany business – one with

the crème de la crème of readers, highly educated with high

household incomes and wealth – it is The Boston Globe.

Instead of being that business, it was eking out – based on

the offers The New York Times Company received – about $8

million in cash flow, which means Henry likely overpaid;

newspaper multiples – or valuations – were once seven times

cash flow, meaning the price should have been closer to $56 million,

not $70 million.

But maybe Henry figured he needed to offer a premium for

both papers – all of $14 million.

New York Times shareholders should demand Sulzberger’s

resignation before he inflicts even more damage to the firm.