Monday, August 05, 2013

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.

1 comment:

Allan said...

Doug, I really enjoyed your well written post.

We all know Mr. Welch's GE reputation. One would have to assume if he offered $500 Million for a property, he would be thinking it could be worth much more.

Unless he really was being "generous."

Is it impossible that both men were wrong about the financial value?