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New York Times Co Case Solution
The proposal seems to be fair, since the company owners already have an independent CEO, having an independent chairman wouldn’t do much harm as the controlling interest will be still in the hands of the owners. Furthermore, an independent chairman would mean that it would focus on the long-term strategic goals on the whole rather than watching the interest of the owners or the shareholders in particular. In other words, it would be representing the company, not the management or the public. Apart form this, adding independent board of directors is a very crucial decision. This might result in a lot of conflicts and a clear division between the boards of directors might be created. However, at the same time new ideas and management perspectives will be flowed in.
Following questions are answered in this case study solution
Analysis of Ownership Construction
MSIM's Claim and the Dilemma Raises for the Family
Value of the Firm by Eliminating the Dual-Class Structure
Family behind New York Times Response to MSIMs Proposal
Case Analysis for New York Times Co
1. Analysis of Ownership Construction
The founder of New York Times had always believed that the ownership should remain within the family, and to keep the company an independent and free from the public influence, as per the common belief that the journalistic integrity of the newspaper demanded it. However, there was a lot of risk involved of the later generations selling their part of ownership to the general public and reducing the family ownership. To avoid this problem, New York Times introduces dual class structure. The ownership construction was simple, whereby they issued dual shares of Class A and Class B, which had different control, rights. Class A could be bought and sold like any share and was made available to the public, but had no voting rights. On the other hand, Class B was held within the family and would not be traded publicly and carries the voting to rights to elect the board of directors. To avoid the problem of later generations selling the shares off the ownership was maintained by a trust known as Ochs Trust. This restricted them to sell outside the family and thus ensured family control over the company for generations.
Furthermore, the reason for introducing dual class structures was to defend themselves from hostile takeovers, as there have been several cases like that Knight-Ridder’s takeover by rival company McClatchy Newspapers.
Apart from this, another reason why the ownership construction was designed this was due to the sudden changes and developments occurring in the newspaper industry. With the introduction of radio, than televisions and then Internet, the growth slowed down in print circulation and the companies had to face fierce competitions. This resulted in large investors forcing them to sell off their companies to the other rival companies. Such pressures from the large investors resulted in a huge risk for companies to lose its ownership.
This was about to happen with new York times when, Saul Steinberg tried raise his stakes in the company and started marking a hostiles takeovers bid. However, due to the controlling board of Class B shares, he was forced out. Dual class structure is a very smart move by the New York Times to maintain the control within the family and thus continue to follow the goal of the forefathers to keep the company independent and free from the public influence.
2. MSIM's Claim and the Dilemma Raises for the Family
Morgan Stanley Investment Management (MSIM) is the company’s fourth largest shareholder, with about 5.6% of the stock in hand. In 2006, MSIM protested against the dual class structure and suggested eliminating it. Since the Sulzberger family, had an immense unwanted control over the company since it went public in 1969. According to MSIM the dual class structure resulted in special privileges for the family owners and disfavored the public shareholders. According to them the board of directors has failed to fulfill their responsibilities. The company has lost it purpose of protecting the editorial independence and integrity and resulted in lack of accountability to the company shareholders. Furthermore, they believed that due to this their financial and operational performance was going down, and there has been a 52% reduction in the prices of the shares. Despite that, there was no reduction the compensation to the companies managers; they also claimed that they had pointed all their concerns before, but they had been ignored, as the management had failed to allocate the capital efficiently.
MSIM suggested combining the Class A and Class B shares and giving the shareholders equal voting rights and representation. According to them this would result in higher accountability and will improve the operational and financial performance of the company by reducing the difference between the market price and the intrinsic value. The manager Elmasry had sent a report stating all these claims.
The arguments stated by MSIM were pretty valid as there were enough proofs that the revenues of the companies were falling. Furthermore, there had been cases whereby the company had not let any public shareholder take major decisions or elect the board of directors. However, one of the claims by Elmasry was proved wrong regarding the corporate governance, whereby the company stated that the company has been employing state-of-art corporate governance. Also, Sulzberger gave a very clear reply regarding the dual- class structure that the investor had the full knowledge about it and therefore, any investment decision made by them was under the full understanding that they wont have any voting rights and will be paid equal dividends.
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