Where Is Jack Welch’s $600 Million When You Really Need it?

Philip M. Stone April 7, 2009

They say that nothing in the US newspaper business should shock anymore, but the New York Times Company’s announcement that if it doesn’t get around $20 million in employee give-backs in about 30 days from the Boston Globe then it would close down the newspaper comes about as close as anything to shock value these days.

And while it’s not nice to say “told you so” this column was quite vocal in its “Are You Mad?” scenarios when NYT a couple of years back  continually turned away former General Electric (GE) chairman Jack Welch’s proposal to buy The Globe for somewhere between $500 - $600 million. Want to bet if Welch came up with that offer today how quickly Arthur Sulzberger would grab hold?

Welch, of course, isn’t about to do that – maybe he would look at the value of the carcass if the NYT really does close down The Globe, but more than likely for the past two years Welch has had Sulzberger in his daily prayers, thanking God that the NYT chairman had refused to sell.

Welch, who was a hugely successful  GE chairman, actually had a pretty good plan for what he wanted The Globe to be – an all local newspaper. When The Globe announced a couple of years back that it was closing its last three remaining foreign bureaus – Jerusalem, Berlin and Bogotá – to save around $1 million that was something that Welch would have willingly bought into. But in April, 2007 Welch announced, “Management has made it very clear to us that they have no interest in selling the Globe,” and that was the end of that.

It has never been clear exactly why Sulzberger didn’t sell to Welch, but it could be pride had a whole lot to do with it, and as any savvy business person will tell you, that is the last thing that should play a part in any such decision.  Arthur Ochs Sulzberger Jr. became NYT publisher in January, 1992 (his father remained company chairman through 1997), and one of the first things the son did was to spend $1.1 billion for The Globe in a deal completed in September, 1993. That deal made his mark on the company, it is not something he would want to give up on willingly, but two years ago he should have got on his knees to thank God that someone was willing to part with $500 – 600 million or so to take that problem off his hands. Instead the company stubbornly spurned the offer and now closure could loom possibly in 30 days if the unions don’t cave in – they have been caving in elsewhere.

It had to be pride or Sulzberger was wearing blinkers, for being able to sell The Globe for what was then a fairly decent price given the circumstances would have let the Times Company pay down the very debt stifling it today and no doubt the tax losses could have been put to good use. If not pride then at the very least management took a gamble on print’s future that metropolitan newspapers would eventually recover financially and the Globe would again become a cash cow. One can’t help but wonder whether Sulzberger, and CEO Janet Robinson, knowing what they know today, would then have made the same decision.  

Back in 1993 Sulzberger had paid what, at the time, was the most for a newspaper when he bought The Globe. The  buy was mainly via shares – the company had been busy months before buying up its own shares and it then issued another  37 million A shares (the ones that don’t have control rights) to get the deal done with Affiliated Publications.  For around 10 years after The Globe apparently did real good, but then Boston got nailed with the Internet bubble burst, department stores merging, and, of course it suffered when the likes of Craigslist made their appearances and also when advertisers started diverting their spend to the Internet.

By the end of 2006, having spurned Welch’s offer, the company had little choice but to recognize reality and it wrote down the value of its New England properties – mostly The Globe, but also the Worcester Telegram & Gazette – by $814.4 million.

But things continued to get worse. According to The Globe’s own story, it lost around $40 million last year and it is estimated to lose $85 million this year, although the newspaper gave no source for those numbers. According to a report from Barclays, The Globe generated $443 million in 2008 with that figure expected to drop this year to $378 million, and down again in 2010 to $350 million. And it also has to face a $535 million under-funding in the pension plan.

Now in normal times annual losses of $40 million or $85 million would not have been the end of the world for a company like NYT, – the mother New York newspaper could have covered those losses, but these are not normal times – the company lost $57.8 million last year. To ensure it had enough money on hand for debt payments this year plus sufficient operating capital the company recently completed a sale/leaseback of its new headquarters; it also had to go to Mexican investor Carlos Slim for a deal worth some $250 million but costing some 14% annual interest plus featuring a low warrant price to convert bonds into shares later; shareholder dividends have been stopped, and employee pay cuts imposed.

In its discussions with some 13 unions in Boston, The Times Company isn’t just looking for pay cuts; it’s looking for a new business relationship with its employees, something that Hearst, for instance, has forced through in San Francisco.  In The Globe’s case it means  that those employees who have apparently lifetime employment contracts – and you can bet they are on a high pay scale – will  lose that job protection. Some 400 Globe union members have been laid off or have taken buyout packages in recent years, according to the paper’s largest union, and the Boston Business Journal has figured out the $20 million in labor savings The Times is seeking is the equivalent of another 300 jobs going.

There is no doubting that The Globe is a major metropolitan newspaper. Its weekday circulation is said to be 324,000, the 14th highest in the US, and Sundays are at 504,000, the 11th highest. If The Times carries through with the threat it would be another Boston shot heard around the world.  

Of course the financial people love this (which is why we love the financial people?) On an overall down day NYT shares ended up 4%.