The Wall Street Journal-20080128-Hedge Fund Seeks to Sway New York Times- Harbinger Also Targets Media General Board Amid Holder Discontent

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Hedge Fund Seeks to Sway New York Times; Harbinger Also Targets Media General Board Amid Holder Discontent

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Two media companies hope a hedge fund called Harbinger isn't, as its name might suggest, a sign of things to come.

Harbinger Capital Partners Funds, a low-profile hedge fund managing $18 billion, nominated four candidates Friday for election to the board of New York Times Co. Together with another investor, Harbinger has 4.9% of the Times. The same day, it made a similar move on the Richmond, Va., newspaper and television-broadcasting concern Media General Inc., in which it has accumulated an 18.4% voting stake.

Harbinger's move against the Times comes three months after a Morgan Stanley investment fund sold its stake in the company, ending a two- year campaign for changes at the publisher. Harbinger could pose a bigger threat. Morgan Stanley never ran for board seats. A deep well of investor discontent with how the Times is dealing with broader newspaper industry woes, such as declining advertising revenue, means the hedge fund will at least get a hearing from shareholders. Last year, more than half of Times' outside shareholders withheld votes from the company's board.

Harbinger and its partner in the Times' effort, Firebrand Partners, plan to send a letter to the Times today detailing their intentions and requesting a meeting with the company's executives and its board. The letter, written by Firebrand Chief Investment Officer Scott Galloway, who is one of the nominees for the board, says "the current Board, while impressive in stature, has not been effective in inspiring the requisite bold action this media environment demands." Harbinger's nominees have "deep expertise" in capital allocation, Internet media and brand strategy.

A person close to Firebrand said the investors' main concern is the Times' allocation of capital, including whether it should continue to invest in as broad a mix of assets as it does, which includes an interest in the Boston Red Sox. "You've got a baseball team, you've got regional newspapers, you've got real estate; the whole is less than the sum here," the person says. The two say the Times should put more focus on expanding digital revenue.

Harbinger doesn't have any chance of taking control of the Times without the assent of the Sulzberger family, which controls the company through super-voting stock. Still, outside shareholders elect four of the company's 13 directors. If Harbinger wins those four seats, it could intensify pressure on the company to take radical action to lift the plunging stock price, which is trading near its lowest levels in 11 years. The company's market capitalization is $2.1 billion.

Harbinger could be "stirring the pot in some fashion," says newspaper analyst John Morton, noting that The Wall Street Journal's parent, Dow Jones & Co., had been seen as inviolate and yet family divisions led to its sale last year to News Corp. Harbinger's actions could have a similar impact, he said. "You could describe this as blood in the water," he said, adding that the fund has little chance of success.

Harbinger is a New York affiliate of Harbert Management Corp., of Birmingham, Ala. It is led by Philip Falcone, a former hockey player at Harvard University who once ran junk-bond trading at Barclays Capital. The fund has turned up in an array of companies in the past year, accumulating shares in Northwest Airlines Corp. and Leap Wireless International Inc., among others. Last summer, it ran an unsuccessful proxy fight for seats on the board of Chicago steel company Ryerson Inc.

"They have done a good job managing money," says veteran media money manager Mario Gabelli, chief investment officer of Gamco Investors Inc., one of Media General's biggest outside investors and a small shareholder in the Times.

Harbinger, which scored big returns in the subprime-mortgage market in the past year, says its specialties include distressed situations. It is making two plays in the newspaper industry at a time when falling advertising and readership have created deep pessimism about the industry's prospects.

The Times is no exception to those trends. Its Boston Globe newspaper has been particularly hard hit.

Times Chairman Arthur Sulzberger Jr. said in a statement Friday that the board's nominating-and-governance committee would review the nominations and make a recommendation to shareholders "in due course." Yesterday, a Times spokeswoman said the company had no further comment.

A person close to the Times played down the impact of Harbinger's move, saying the Sulzberger family had anticipated someone would take such a step, even after Morgan Stanley sold its stock. The person said Harbinger's actions would have "no impact on what the family is thinking."

Aside from Mr. Galloway, other nominees for the board include Allen Morgan of venture-capital company Mayfield Fund; Gregory Shove, a former executive at AOL and a director at online-commerce company RedEnvelope Inc.; and James A. Kohlberg, former executive at Kohlberg Kravis Roberts & Co. and co-founder of private-equity concern Kohlberg & Co.

Among the shareholders from which Harbinger is likely to seek support is T. Rowe Price Group Inc., which owns nearly 13% of the Times' Class A low-voting stock as of Sept. 30, according FactSet Research Systems Inc. Brian Rogers, chairman of T. Rowe Price Group, said Saturday he couldn't say how his company might vote. Speaking generally, he said, "Investors should reasonably consider all alternatives when they review a company's proxy statement and a company's performance."

Like the Times, Media General is family controlled and has faced pressure from discontented outside shareholders in recent years. It owns a chain of smaller newspapers in the Southeast, including the Tampa Tribune and Richmond Times-Dispatch, as well as 23 TV stations. The company has been hit hard by lower ad revenue in both its print and TV operations.

The company's stock this month traded at 15-year lows and now has a market value of $430.9 million. Media General Chief Executive Officer Marshall Morton noted in an interview yesterday that Harbinger's proxy nominations were futile, as outside shareholders can elect only three of the nine seats on the board.

Harbinger, which put forward three candidates, has a strong chance of winning seats. Mr. Gabelli, who says he is unhappy with how Media General has allocated capital, said Saturday he would likely support at least one of Harbinger's nominees, Jack Liebau, and would wait to hear both Harbinger's agenda and Media General's comments before deciding on the other two nominees.

Mr. Morton, the CEO, rejected Mr. Gabelli's criticisms. "We're an industry in transition," he said. As for Harbinger, he said most investors who aren't happy sell their stock and go on. "Why doesn't he do that?" Mr. Morton added.

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Amol Sharma and Gregory Zuckerman contributed to this article.