Wednesday, November 22, 2006


Below is a column I wrote a while back about a private equity group's scheme to acquire The Boston Globe from The New York Times. In the column, I opined that Times Publisher and CEO Arthur Sulzberger "would be a fool" to sell the Globe at this juncture. I no longer believe that. I now think he should sell all of the "New England assets" (The Globe, the Worcester paper, the Red Sox stake and the NESN stake), and gather up $1 billion-plus. This would enable the Times company to enter the next (2009-2010?) recession loaded with cash.

The fact is that the Globe is doomed. Without union concessions, the cost structure doesn't work. And the unions will never concede anything, ever. So the NYT might as well get $600 million for it now, rather than $300 million for it in 2010.

Squeeze Play

October 31, 2006; Page A18

Last week in Boston, a group of local businessmen led by Jack Welch let it be known that they were interested in acquiring the Boston Globe from the New York Times Company for $500-$600 million. The offer served to put the Globe "in play" (as the talking heads say) and to galvanize Class B (non-family) shareholders of Times stock, already up in arms about mismanagement and financial performance.

The public side of this saga began on Oct. 19, when Times Chairman and CEO Arthur Sulzberger received a letter from Sen. Edward Kennedy and a motley crew of local pols and labor skates demanding that the Times stop "disinvesting" in the Globe and sign a pending labor agreement with Globe employees. Picking a fight with the Times has long been the express lane to oblivion in Democratic Party politics. The fact that a gaggle of Democratic pols was picking a fight with it over one of its owned properties meant that private equity could not be far behind. And indeed it was. Whenever a company is "in play," the prospect of auction looms. Buyers hate auctions. They serve only to drive up price. Private-equity firms spend countless hours scheming to derail auctions, often enlisting competing private-equity firms into their consortium to short-circuit the process. Sellers, of course, love auctions and generally insist that they occur to "maximize shareholder value."

What made the Team Welch bid remarkable was its keen understanding of the auction process and its skillful leveraging of local assets toward shutting down any possibility of same by the Times. The Kennedy letter wasn't meant for Mr. Sulzberger; it was a message to other private equity firms: We have the local pols and labor leaders on our side. The presence of Jack Connors, Boston's leading ad-man, as a partner in the deal was another message to private-equity firms: We have the best-connected guy in the city and he employs a lot of people who decide where to place advertising in local media. The inclusion of Joe O'Donnell, concessionaire and one of Boston's favorite sons, sent another message: We have friends on both sides of the aisle. And, oh, by the way, "Jimmy" Lee of J.P. Morgan Chase is crunching the numbers and will provide Team Welch with all the financing it could ever need. Usually, the more public the process is, the more likely an auction results. But by tilting the mirrors of perception in public, Mr. Welch left other private-equity players with the following choice: Sign on with Team Welch or risk a nasty, local bidding war that will doom the upside in the deal for everyone.

Now comes the tricky part. Mr. Welch and Mr. Lee must get shareholders of Times B-shares to clamor for the sale of the Globe. Morgan Stanley has been vocal about its disappointment with Times senior management and must decide whether it should push for a sale. Ordinarily, they would push for an auction to maximize return. But with Welch and Co. having effectively shut that door, they may find themselves endorsing the deal (demanding a higher price) and calling it a day. If enough Class B's join with Morgan Stanley clamoring for a sale, pressure on Mr. Sulzberger would be ferocious.

Mr. Sulzberger would be a fool, of course, to sell the Globe to anyone at this juncture. The transition from newsprint to pixels has been a painful one for newspaper companies everywhere. Print advertising revenues have hemorrhaged. But Web 2.0 is just around the corner and social networks have emerged as the engine of growth on the Internet. Combine shared interests (social networks) with publishers (content aimed at those interests) with targeted advertising (specific to those interests) and you have the makings of a money machine. On any given day in the summer, more people read the Globe's Red Sox blog than buy the physical newspaper. The blog is a social network. The content that is published there doesn't cost much to produce. Red Sox stuff sells like hotcakes all across America. Everyone shares in the revenue.

The Times has said it has no interest in selling. Jack Welch and Co., having capped the price by taking auction out of play, must now move decisively to force a sale. It's a long shot -- but the skill with which Team Welch has played its hand so far suggests that the future ownership of the Boston Globe is still an open question.