Despite Shareholder Protest, Analysts Say ‘NYT’ Will Avoid KR’s Fate

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By: Jennifer Saba

The action taken by one major shareholder of The New York Times Co. calling for the elimination of its dual-class stock structure might seem similar to what Knight Ridder experienced in November when three of its top shareholders demanded the sale of the company.

Yet it’s highly unlikely the New York Times will end up with the same fate as Knight Ridder, say several financial analysts.

“This is precisely why they created two classes of stock — to prevent this from happening,” said industry analyst John Morton. Knight Ridder has only one class of stock with no family control.

During Tuesday’s New York Times shareholder meeting, Morgan Stanley Investment Management (MSIM) filed with the Securities and Exchange Commission a document requesting the New York Times create one class of stock in order to foster more ?accountability.?

In a separate move, investors holding more than a quarter of the shares of The New York Times Company withheld their votes for directors at the annual meeting, “registering their dissatisfaction with how the company is performing,” the Times reported. Last year only 1% withheld votes.

The Times Company’s stock has performed below average even in a struggling industry the past two years. Since January 2004, the company shares have fallen 47%. In the same period, an article in the Times noted today, stocks in the Standard & Poor’s 500 index have climbed more than 17 percent.

Among other complaints voiced by Morgan Stanley: executive compensation. By one count, Chairman Arthur O. Sulzberger, Jr. received cash and stock compensation of more than $2.4 million, plus options valued at $765,000, in 2005, a total increase of more than 14% over 2004.

The Sulzberger family holds roughly 88% of the votes and Class B shares allowing them to control the board of the company. The current structure makes it “takeover-proof” wrote Goldman Sachs analyst Peter Appert in a note released this morning.

“We believe that the Sulzberger family is 100% opposed to giving up family control, as this would be perceived as a violation of the 1997 Trust’s primary objective: maintaining the editorial independence of the New York Times,” wrote Appert. “Our strong sense is that the various branches of the Sulzberger family are united in their opposition to giving up family control.”

There is speculation that other shareholders are aligned with MSIM. The top institutional shareholders that hold Class A stock are Private Capital Management (with approximately15%), T. Rowe Price Associates (with approximately 13%), and Fidelity (with approximately 6%).

Since holders of Class B shares vote for 9 of the 13 board members, while Class A shareholders vote in the remaining four seats, the actions taken by MSIM seems more saber rattling than anything else.

“It’s hard to say what impact these discontented shareholders can really have,” wrote Merrill Lynch analyst Lauren Rich Fine in a note released this morning.

Still, they could put some heat on management to get more value. “The reason [MSIM] is doing this is the share price,” Morton explained. “If [New York Times executives] are smart, they should be buying back more shares.”

While the New York Times doesn?t have to do anything, Morton says executives are probably sensitive because they don’t want unhappy shareholders: “It matters, it’s just politic.”

Fine wrote she believes the Times will have “to respond in some fashion” especially if PCM and other shareholders publicly side with MSIM. “The pressure on the New York Times would certainly increase.”

Though it’s not likely the industry will go through further consolidation, Appert thinks restive shareholders will make newspaper companies continue to focus on cost control and implement share repurchase programs.

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