Worse Than Worthless: Market Negatively Values the New York Times Company's Flagship Newspaper

November 21st, 2008 9:49 AM

In other words, they would have to pay you to take what is rapidly becoming Manhattan's quaint little alternative newspaper off their hands.

Yesterday, New York Times Company stock closed at $5.72. That is, by far, its lowest close in the 22 years presented in this chart at Yahoo!:

NYT Chart

Before today's opening bell, the company is worth $822 million,

Using conservatively adjusted numbers from a hysterically titled July 25 Business Week article about the company ("How Can The New York Times Be Worth So Little?"), I will show that the market currently sees the New York Times newspaper as literally being worse than worthless.

Here are the two key paragraphs from Business Week's original "analysis":

In a research note published on July 9, Lehman Brothers (LEH) analyst Craig Huber estimated the Boston Globe and the 14 regional newspapers the company owns could be sold for $575 million after taxes. Huber valued the 17% stake in the Boston Red Sox, after taxes, at $152 million and the Times's portion of its new headquarters building in midtown Manhattan at $750 million after taxes. The company paid $410 million three years ago for Web property About.com; according to an estimate by tech blog Silicon Alley Insider, that could be sold for approximately $600 million today. That sounds low to us, since About has consistently reported increasing revenues. Let's conservatively kick that up to $700 million and assume a 20% tax bite on the Times's $290 million gains in that sale, which is $58 million. So $642 million, aftertax, for About.com.

Totaling up those figures gets you to just over $2.1 billion. Subtract that from the enterprise value, and you get $750 million for the company's remaining assets.

Here are estimated adjustments to the components just named for today's market realities:

  • Boston Globe and regional newspapers -- cut July's $575 mil by about half; call it $280 mil.
  • Boston Red Sox -- Despite the economy, there is little sign that sports franchises are declining in value, especially a marquee property like the Red Sox. But to be conservative, knock the original $152 mil down to $140 mil.
  • Despite the real estate slump, the NYT headquarters building's value probably hasn't suffered all that much in four months. But I'll knock it down anyway (figuratively) by 20% from $750 mil to $600 mil.
  • The original About.com valuation at $642 million by Lehman's Huber goes a long way towards explaining why Lehman is where it is: in bankruptcy. The Times vastly overpaid for About.com, which is a collection of advice and information sites that are hardly, if at all, unique. I'm going to go hyperconservative on this one and assume that About.com is about .... worthless.

Even with a very conservative set of assumptions, that leaves the rest of The Times Company -- the flagship paper, the International Herald Tribune (IHT), and one TV station -- as having a negative worth of $198 million (+$822 - $280 - $140 - $600). Since the TV station could probably sold at a positive value, this means that the company would probably have to pay you an absolute minimum of $200 million to take its flagship paper and the IHT. Going to more moderate assumptions on the company's other components would quickly increase the estimated negative valuation to $500 million.

There's a steep price to pay for insufferable bias, and NYT's shareholders are paying it. Yours truly and many others saw deep trouble ahead for the Times as early as the summer of 2005 if the paper didn't stop its Bush-deranged, standards-compromised march towards the cliff.

They had their chances, but nothing changed. Now the precipice approaches.

The market is telling the company's shareholders that they'd be better off hanging on to the Red Sox and their interest in the headquarters building -- and shuttering or selling off whatever they can of everything else.

Cross-posted at BizzyBlog.com.