Paging Suze Orman. The New York Times Co. got some liquidity this week with a $250 million cash infusion from two banks controlled by Mexican billionaire Carlos Slim. But at what a price — 14 percent interest. Arthur Sulzberger and Janet Robinson might have gotten a better rate putting it on their Visa card. And as Suze will remind you, carrying debt at that rate for any period of time can be a killer.
By my calculation, the company has about a $35 million a year interest obligation on the transaction (though part of that can be satisfied by awarding Slim preferred stock at a discount), set to run for three years. The company reported operating profits of $56.5 million through the first three quarters of 2008. So the interest is a little less than half their annual operating profits.
Some quick thoughts on the deal.
Having trashed Michael Hirschorn’s Atlantic article suggesting the Times could fail in May, I should have added an explicit qualifier — the company’s debt problem isn’t quite that bad but it is plenty serious.
There are benefits to both parties. The Times has a friendly, passive investor who is not asking for seats on the board, a radical shift in strategy or a change in management. Financially, it buys the company time to get full price for its stake in the Boston Red Sox rather than selling in a hurry at a distress price. The difference could recoup some of the interest cost.
Slim, who bought a 6.9 percent stake in the company last fall, stands to end up controlling 17 percent. If the New York Times Co. survives and begins growing again, the current hammered-down share price will look like a bargain. Slim does assume risk, but with a $60 billion fortune could afford to lose it all. Institutional investors, who need high performance ratings to retain the accounts they manage, are much less willing to take that risk.
The high interest rate reflects how tight credit markets are now. The Times probably would have had difficulty getting conventional funding at a lower rate. Warren Buffett demanded similar terms — 10 percent interest — for his investment last year in Goldman Sachs. Neither of these guys got to where they are by being softies on deal terms.
The possibility of rich foreigners buying American newspapers (or in this case a share of one) has been out there for a while. With occasional small exceptions, mostly Canadian, it hasn’t happened. Slim’s investment might pave the way for others. Alexander Lebedev, a Russian multi-millionaire (and former KGB spy) has just bought the Evening Standard in London for a nominal sum.
For Slim, who made his fortune in telecommunications, and others who may follow, an investing partnership will bring tests of editorial integrity. The Boston Herald industriously fished up a 2007 Times op ed that characterized Slim as a “robber baron” and talked, at least metaphorically about “theft.” Covering Mexican business, as the Times does, will continue to involve the issue of how much is too much ownership of an economy by a single individual.
This was also the week that Newsday editor John Mancini walked out for five days on the papers’ new owners, the family-controlled Cablevision. The Dolans are not foreign, but they are new to the newspaper business. Mancini didn’t say much but conceded that the disagreement, since patched up, had to do with editorial depth and independence.
Be ready for more of the same. People wondered how Rupert Murdoch’s Wall Street Journal would cover China where he has done a lot of business (so far so good). How about a West Coast paper in the hands of the Chinese?
