Managers of activist hedge funds Harbinger Capital Partners and Firebrand Partners had high hopes when they teamed up to win a seat on the New York Times Co.’s board of directors in May. The idea was that fresh blood would get the company to sell off some of its many peripheral holdings, beef up its Internet presence and snap out of its slump. But the Times Co.’s share price — like those of other media companies — continues its tailspin (it was below $7.00 recently, down from its 52-week high of $21.14), and in December the company took out a new mortgage on its headquarters.
The Times is but one example within an industry in major decline. Detroit’s two daily newspapers are considering scaling back home delivery to three days a week. Two Connecticut newspapers — The Bristol Press and The New Britain Herald — have floated the idea of requesting a government bailout. Fitch Ratings recently downgraded to junk status the debt of McClatchy Co., the chain that owns The Kansas City Star, The Miami Herald and The Sacramento Bee. Then there’s the bankruptcy of the privately held and massively indebted Tribune Co. — owner of the Chicago Tribune, the Los Angeles Times and The Baltimore Sun — a company in which hedge fund firm Highland Capital Management holds a not-so-shrewd stake. Similarly, Harbinger, run by Philip Falcone, owns a piece of Minneapolis’s fading Star Tribune . Fitch says several big U.S. cities may no longer have a daily paper by 2010.
“Investors shouldn’t even be looking at this sector,” asserts Lauren Rich Fine, research director for digital media company ContentNext Media. “It’s an industry in crisis. And that’s only being accelerated by the credit crisis and the economic cycle.”
Whither all that supposedly hidden value in newspaper properties?
“These hedge fund guys think they know so much about how to leverage a newspaper’s brand name on the Web,” says John Morton, a media industry analyst at Morton Research in Silver Spring, Maryland, arguing that hedge funds have for the most part misjudged the industry. Fine adds that what seems to have been a common perception among hedge funds was wrongheaded: “The newspaper industry faces challenges beyond the scope of any management team,” she asserts. “Maybe the hedge funds initially thought management could make a difference.”
