24/7 Wall St.

Everyone wants to buy a seat on the board of The New York Times Company (NYT). Morgan Stanley’s asset management arm made a run at it, and they were turned away. Capital Partners and Firebrand Partners tried. They were able to get two seats. It may not matter since the founding Sulzberger family has most of the votes.

The Times has a value beyond its financial worth. Like The Wall Street Journal, there are buyers who would pay more for the company, and the newspaper, than they are could pay back in cash flow over any reasonable period. NYT currently has a market cap of $2.7 billion. Short-term and long term debt together are about $1 billion.

Buyers of newspapers have learned a hard lesson over the last year. Locals bought the daily in Philadelphia. They will be likely to make it out with their shirts. Sam Zell, a genius in a former incarnation, bought The Tribune company. Wall St. bond people are now betting the company will default on it debt next year.

What is The New York Times worth? The newspaper? The answer will be different for a vanity buyer than one with a purely financial interest.

In 2007, NYT had revenue of $3.195 billion. Operating income was $227 million. Of that $35 million came from odd-ball online division About.com. The News Media Group, all of the company’s papers, had operating income of $249 million on revenue of $3.092 billion. Corporate cost ate up some of the operating income from each division in the consolidated numbers. Fire all the people at HQ.

The New York Times Media Group, the Times and its online operations, were $2.052 billion of the company’s total revenue in 2007. The parent does not break out operating revenue for each of the newspaper groups which also include The New England Media Group (The Boston Globe) and The Regional Media Group (several smaller papers).

Based on rapidly falling revenue, there is a very reasonable chance that the Boston operation does not make a dime. It may even be losing money. Revenue for the division fell from $633 million in 2006 to $592 million last year. Monthly figures show that the topline is still moving down fast.

The regional papers also have falling revenue and had a topline of $448 million last year. If they generated operating income of $50 million, it would be impressive.

That leaves The New York Times and it web operations with $2 billion in revenue and about $200 million in operating profit. The revenue is still falling. In February, advertising revenue at the regional papers dropped almost 16%. In Boston, ad revenue was off 11.6%. The New York Times itself did somewhat better with ad revenue off only 4.1%.

With dropping revenue, the multiple given to newspaper properties trends down each quarter. With a multiple of 8x, at the high end of the range of what these businesses go for now, The New York Times newspaper is worth about $1.6 billion.

NYT could probably get someone to pay twice what the newspaper of record is worth. But, the buyer would be wise not to borrow to make the purchase. The leverage would be overwhelming.

The numbers also indicate that the NYT market cap is too high even with the stock down from $47 in early 2004 to $19 today.

Douglas A. McIntyre