A Mexican Billionaire Rescuing The NYT and A Former Soviet KGB Spy May Buy London’s Evening Standard – Welcome To Week 3, 2009

Philip M. Stone January 20, 2009

Deep financial problems can bring strange bedfellows so nothing should really surprise us these days including the New York Times Company looking to Carlos Slim, a Mexican who just happens to be the world’s second richest man, to help bail it out, while in the UK negotiations are in full swing to sell London’s only paid-for afternoon daily to a Russian billionaire who at one time served as a lowly KGB agent in the Soviet embassy there.

The first question that pops us is what happens to editorial integrity. In the case of the New York Times there’ll be absolutely no change whatsoever, and in the case of the Evening Standard the worst that probably would happen is that if billionaire Alexander Lebedev really dislikes a story he might write a “shareholder’s column” to put forward his view – something he sometimes does in Moscow’s Novaya Gazeta in which he holds a 39% stake, although one big difference is that with the Standard it looks like he may get a controlling 75% or more.

Carlos Slim’s increased role in the NYT beings to mind our headline back in September, 2008, “There Must Be Something About Mexican Billionaires Wanting To Become US Press Barons”, when ftm first reported that the billionaire had taken a 6.4% equity stake in the A shares (it’s the B shares that control the voting power). He hopefully has learned the lesson from another Mexican billionaire, Mario Vasquez  Rana who in 1986 bought United Press International (UPI) out of bankruptcy for $40 million. Vazquez Rana had made his fortune in the furniture business and then in 1976 he started his Organizacion Editorial Mexicana (OEM) which today is the largest Mexican print media company and the largest newspaper company in Latin America.

But his attempt to make himself a US household name by owning one of the two US news agencies never panned out because American publishers strenuously objected to such a foreign influence and canceled their UPI contracts.  He eventually had to sell out. The lesson for Carlos Slim: Gringos willingly will take your money, but otherwise keep out!

The plan seems to be for  Slim to provide the Times Company with $250 million in exchange for 10-year notes with warrants that can be converted into common shares (again, the A shares, not the board controlling B shares). The investment will receive an annual dividend, somewhere around 10% -- not a bad return on money these days and it indicates how desperate the Times Company is to get its hands on the money as it apparently can’t do a less expensive deal elsewhere.

There’s no board representation, there are no controlling B shares, but if Slim does convert the warrants (price not yet disclosed) at the end of the day he could end up owning around one-third of the A shares.

Slim bought 6.4% of the A shares in September for $128 million. That investment is now worth around $60 million – less than half. But to a billionaire like Slim – if you make a fixed or mobile telephone call in Mexico then you’re putting money in Slim’s pockets --  a near $70 million loss in a $60 billion fortune is a mere drop in the ocean and no doubt given time that initial investment will pay off, too.

The most important thing that Slim must do is to keep his fingers well away from the editorial offices, and from all indications that is the way it will be -- a financial rescue deal and that’s it. Vasquez-Rana was really very poorly treated when he rescued UPI – let’s hope Slim is not treated the same.

Meanwhile in London there are more than a few smirks going around with the definite possibility of Russian billionaire and former KGB spy Alexander Lebedev buying a majority stake in the Evening Standard with the current owner, The Daily Mail & General Trust (DMGT), keeping a minority position. Mind you, if Russia’s then richest billionaire, Roman Abramovich,was able to buy the Chelsea football club in 2003 and raise its performance to levels not seen by its suffering fans for many a moon by buying in managerial and playing talent, then perhaps it may not be such a bad thing for the Evening Standard which has been really hurting for the past couple of years as it has failingly tried to fight off the challenge from two competing free newspapers.

There’s no sure deal here but it is really sad to see the Standard fall in such a way. Who to blame – well, we can start with none other than Rupert Murdoch and also DMGT management. Why Murdoch? Because it was he who back in 2006 announced he would publish a free PM newspaper, thelondonpaper, to compete with the paid-for Standard. So the smart guys at DMGT decided that in order to protect the Standard they would compete head-on with Murdoch and launch their own free newspaper, London Lite, which they actually got on the street a few days before Murdoch’s paper, and to show the public that you really get what you pay for they increased the Standard’s newsstand price from 40 pence to 50 pence.

The end result is that the two free newspapers are distributing combined around 900,000 copies each weekday, whereas the Standard has lost more than 100,000 circulation – if it wasn’t for increasing its bulk sales the losses would be greater, and its fully-paid circulation is now just 158,382  with another 126,346 in bulk sales. Nothing there to indicate the 10 pence newsstand price hike did any good!

What might have happened if DMG&T had taken the money it invested in London Lite and instead invested it in the Standard? With so much better an editorial product would it have just meant that Murdoch would have gotten new readers who don’t pay for newspapers anyway, while the Standard kept its base with a far superior editorial product? Unfortunately, we’ll never know, but if Lebedev does get his hands on the Standard and he does invest strongly in a brighter product (part of the deal is that the DMGT pays the severance costs for all the old fogies who will get tossed out), then perhaps this could be the rebirth the Standard deserves.