Maybe Carlos Slim Should Buy The UKs Independent Newspapers And Show The World How To Really Make Money From Print In These Dark Economic Times

Philip M. Stone January 28, 2009

The one notable quote in Carlos Slim’s loaning of some $250 million to the News York Times Company at 14% interest and a low warrant price to convert shares later is that the Mexican billionaire is willing to make money wherever he can and newspapers are as good a place as any. You don’t hear that very often these days!

Examine the NYT deal and what really shoots out is that 14% interest rate. With the Fed, the Bank of England, even the European Central Bank offering banks money at close to 0%, it seems that 14% was still the best deal going for the NYT. As good as any example as any on just how tough it is these days for the newspaper industry to raise cash.

Slim’s spokesman said just last week, “We consider the possibility of investing whenever an opportunity comes along that makes financial sense…be it a newspaper, a bank…”

So while most banks have no interest in loaning money to newspapers it seems the world’s second richest man has no such qualms, and at 14% that’s not too shabby a return on one’s money these days. The odds on the NYT Company going into Chapter 11 and thus being able to rid itself of such tough terms are probably pretty slim. Mind you, with the major credit agencies dropping NYT debt to junk status if it was you, would you loan the Sulzbergers money?

If Slim believes the newspaper business is a fine business to make money on then perhaps he should look across the Atlantic to the Independent News and Media (INM) that is looking to sell assets that no longer make a profit, and The Independent and Independent on Sunday are said not to be making profits. And the pressure is really on the group because it failed to sell its 39% stake in the Australian APN (no takers), and it really wanted that money to shore up finances.

So is this not a perfect opportunity for Carlos Slim to do another newspaper deal and show the world how easy it is to make money on newspapers these days?

Of course the big difference in the NYT deal is that he is just an investor, he has no board representation and he has no influence over what happens editorially at the Times (his agreement does restrict the business side on some asset sales and the like, but editorial is off limits to Slim, which is probably just the way he wants it.)

But if he got involved with the Independent newspapers then he would have his finger in the editorial pie – how would the British react to a Mexican owning a national newspaper or two?

Would their reaction be similar to what the Seattle Times wrote Monday about Slim (we had predicted there would be some who would react this way): “The move is ominous. Ownership matters. Slim is a capitalist with a close connection to the Mexican state. He is buying a substantial stake in the most politically influential newspaper in the United States, and he easily has the wealth to buy the whole thing.

“The New York Times is under strain, as are newspapers generally (and perhaps none more so than the Seattle Times). The company is mortgaging and selling off assets to meet payments on its $1.1 billion of debt. It may need a sugar daddy – and there is Carlos Slim. The New York Times is not just a company, but an institution. It is a major player in American democracy. It should not fall into the hands of a capitalist with loyalties to a foreign state.”

(Obviously Lord Rothemere hadn’t read that Seattle Times warning  before he agreed  to sell his London Evening Standard to a former KGB spy, and interestingly there really hasn’t been that much negativism to new Russian ownership for the ailing Standard – perhaps a good example of the “any port in a storm” philosophy.)

Slim didn’t become as rich as he is (around $60 billion) by not understanding such words as “profit” and “bottom line”, and even more important knowing how to implement policies that provide that “profit”. He actually gave an insight recently at a conference in Texas on how he thinks one can make money out of money-losing businesses – drive them into bankruptcy court, get rid of all the legacy union agreements that no longer can be afforded and all the other overheads that eat away at profitability.

With that kind of thinking Slim probably believes the US made a mistake to bail out its auto industry – it should have been driven into Chapter 11 and the UAW, for all the give-backs it may have given in recent years would then really learn what it means to “live within one’s means”.

A leading US newspaper executive said not so long ago (but it was in an off-the-record environment where he cannot be named) that the way to turn around the US newspaper business is to drive every newspaper with union agreements into Chapter 11, get rid of all those legacy agreements and make new affordable deals, and then come out of bankruptcy again (which basically is what Tribune and the Minneapolis newspapers are doing).

And as for newspapers threatening to close down if they can’t find a buyer, that same executive said that if newspapers were to close, new newspapers could rise from the ashes in that same market within a couple of weeks and not choked by legacy agreements the new newspapers could be profitable from near day 1.

So, probably doubtful that Carlos Slim would want those two British newspapers unless union agreements could be broken and doubtful he would be willing to do a New York Times-type deal with INM because the financials are probably far more risky than they were with the NYT, but here’s a man who says he can make money from newspapers and the Independent newspapers would be as good as an example as any to show the industry how to do it.