The idea of the day comes from Business Insider’s Henry Blodget, who has some smart advice for Sulzbergers: Tap the capital markets. Now.
New York Times Company stock has soared 350 percent in a little under a year, meaning it has a market cap of more than $2 billion now. Blodget says the company should raise $500 million by issuing new stock and use the proceeds to pay off some debt and/or put a cash cushion in the bank.
One thing is for sure, if the Times could sell even enough stock to pay off its loan (which Blodget rightly calls “loan-shark-style”) from Mexican billionaire Carlos Slim it ought to do so pronto. It’s paying him 14 percent interest on $250 million. Paying him off with the proceeds from a stock issue would mean about $35 million or so a year would go toward its bottom line instead of down the rathole.
It would seem to me that the Times could do such a thing without even making its shares worth less (issuing stock dilutes existing shareholders, including the controlling Sulzberger family, by dividing the pie into more slices). It’s hard to tell how the company is being valued these days. You can’t do a P/E ratio since there’s no “E.” But if investors put a multiple of just seven on that $35-million-a-year savings, that would be $245 million, meaning a $250 million stock issue would be a wash for existing shareholders.
I think Blodget’s out on a limb talking about using the proceeds to reinstate a dividend. That would be dumb. But raising more than $250 million would allow the Times to pay off Slim and create a cash reserve in case the recession goes double-dip. Or:
Lastly, raising a bunch of new equity capital would put the company in a stronger position to make the transition to digital, which will almost certainly end in NYTCo having a much smaller business. More cash would allow the company to continue to invest in its (awesome) web site and continue to make opportunistic acquisitions, without throwing away $80 million a year on interest payments.
So what is the Times waiting for? As Blodget says, it better do it while it can. I’d like to see some reporting on whether and how the Times is exploring this.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.