The Wall Street Journal-20080201-Investor Puts Pressure on New York Times -- Nicely- Galloway-s Formula Skips the Hostility- Success at Gateway
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Investor Puts Pressure on New York Times -- Nicely; Galloway's Formula Skips the Hostility; Success at Gateway
Full Text (759 words)When investor Scott Galloway wrote to New York Times Co. on Sunday about a campaign he was starting for seats on the publisher's board, he was reassuring about his intentions.
"There is nothing wrong with the New York Times Company that cannot be fixed with what is right with the New York Times," he said in a letter to Times Chairman Arthur Sulzberger Jr. and Chief Executive Janet Robinson.
Seventeen months ago, when Mr. Galloway was making a similar push for seats on the board of computer maker Gateway Inc., he used almost exactly the same catchy phrase. "There is nothing wrong with Gateway that can't be fixed with what's right with Gateway," he said in a letter to Gateway management.
Mr. Galloway, a marketing professor at New York University who runs investment firm Firebrand Partners on the side, has a new formula for shareholder activism. Instead of being hostile, he offers what appears to be constructive criticism.
The approach paid off in the case of Gateway, for which he worked with hedge fund Harbinger Capital Partners Funds, also his ally in the Times effort. The pair asked for board seats after acquiring a 10.7% stake in Gateway. Rather than go through a proxy fight, the Irvine, Calif., company agreed to put Mr. Galloway on the board. Less than a year later, he helped persuade the company to agree to a $710 million buyout offer from Taiwan-based personal-computer maker Acer Inc., a price 57% above where Gateway stock had been trading.
"The sentiment was that we were being held up," says Paul Weaver, who was a director at Gateway when Mr. Galloway joined the board. "But he didn't come in and cause problems. He was very helpful."
The Times may be a tougher nut to crack. The company is controlled by the Sulzberger family through supervoting stock. Outside shareholders have a shot only at the four of the board's 13 seats that are elected by nonfamily shareholders. It is those that Harbinger and Firebrand, which between them own 4.9% of the stock, are going after.
Still, if Mr. Galloway wins a board seat, he will likely intensify pressure for a shake-up at the Times. The company, like others in the newspaper industry, has seen its earnings hurt by steadily eroding ad revenue. Yesterday, the Times reported a fourth-quarter profit of $53 million, following a big loss a year earlier, although when adjusted for items, earnings per share fell slightly.
On a conference call yesterday, Ms. Robinson dodged questions about the Firebrand-Harbinger nominations. Asked whether Times executives would meet with Firebrand, she said, "We are in touch with all of our shareholders. ... We have every reason to believe that there are a lot of good ideas that we want to hear about, and you will see us continue to do that."
In his letter Sunday, Mr. Galloway told Times executives the investors don't want to change the dual-class voting structure that allows the Sulzberger family to maintain control. They are more focused on how the Times allocates capital, in particular whether it should hold on to the Boston Globe, which has been badly hit by falling ad revenue.
The Times fits with Mr. Galloway's broader investment focus -- companies with strong brands that he believes are underappreciated by Wall Street. It is a specialty he has honed while teaching brand strategy at NYU's Stern School of Business. He learned how to politic with corporate boards while fighting for control of a company he founded, online gift retailer RedEnvelope Inc.
After having his seat eliminated by the RedEnvelope board in a dispute with the company's management, Mr. Galloway tried to win a proxy fight with a campaign attacking the management. He lost and tried again a year later with a more constructive approach. He ended up winning control of the board.
About two years ago he teamed up with Harbinger for the Gateway deal. Mr. Galloway draws up lists of potential targets by looking at companies with well-known, relevant brands but lagging stock prices. Harbinger or other firms pick the target and buy the stock. In return for his input, Mr. Galloway gets a 10% cut of any profit, according to a person close to the firms.
They began contemplating the Times about 14 months ago, but the stock was then trading at about $23 a share, too high for Harbinger, according to this person. But the shares plunged to as low as $14.01 in recent weeks -- finishing at $16.74 yesterday -- which has made the company more attractive.
