The Mexican billionaire, Carlos Slim Helu, has recently increased his stake in one of the leading diversified media company, The New York Times Company (NYT) to 7.2% from 6.9%.
On August 18, 2011, Carlos Slim bought 553,000 Class A shares of New York Times in the range of $6.83 to 7.09 per share. Mr. Slim and his family hold 16 million more share warrants, which if they choose to exercise, will bring their holding in the New York Times to 16%. The warrants will expire in 2015.
Prior to this, New York Times prepaid one of its largest financial obligations, which it owed to Carlos Slim Helu. New York Times paid a total sum of approximately $279.0 million including principal amount, accrued interest and a premium in connection with the prepayment. The move will result in savings of approximately $39.0 million annually through January 15, 2015. However, the company has to bear a one-time loss of $46.0 million in the third quarter of fiscal 2011.
Compelled by a decline in print advertisements and credit crisis in 2009, New York Times issued $250.0 million 14.053% notes to Carlos Slim on January 15, 2009. The maturity date of the notes is January 15, 2015. As the credit market has normalized and funds are available at cheaper rates, it is very prudent to repay the high cost obligations.
The publishing industry has long been grappling with sinking advertising revenue, with the recent global economic meltdown, making the situation even worse. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content.
The New York Times Company on March 28, 2011 has launched a pricing system similar to that of the Financial Times' metered system, whereby after browsing a certain number of free articles, readers will be asked to subscribe for enjoying full access to its articles on phones, tablet computers and the Internet.
We believe the success of the pay model depends on the accessibility of new articles across the Web. People will be reluctant to shell out if content is available free of cost elsewhere. However, The New York Times Company notified that the number of paid digital subscribers reached 224,000 at the end of the second quarter of fiscal 2011.
New York Times, which faces competition with News Corp. (NWS) and The Washington Post Company (WPO), currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains Neutral.
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