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As a part of its ongoing strategy to completely offload assets that bear no direct relation with the core operations, The New York Times Company (NYT - Analyst Report) recently divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million.
As a part of the transaction, the company would register a pre-tax gain of approximately $38 million during the second quarter of 2012. Moreover, the names of the buyers were not disclosed.
Initially, The New York Times Company, used to hold a 17.75% stake (or 750 Class B units) in Fenway Sports Group, which it had acquired in 2002 for $75 million. But the 2008 economic downturn and sinking print advertising demand compelled management to look for strategic options to get rid of the non-core assets, and infuse the proceeds to augment its struggling publishing business.
Since, then The New York Times Company has been trying to offload its stake in Fenway Sports Group. In April 2010, the company sold 50 of its 750 units to the major shareholder in Fenway, John Henry, a commodities hedge-fund billionaire, which lowered its stake to 16.6%. In July last year, the company divested 55.7% (or 390 Class B units) of its stake for $117 million.
Further, in February 2012, it had shed 100 of 310 units remaining for an aggregate amount of $30 million, which shrunk its ownership to 4.97%, and the current transaction successfully culminates the divestment of the remaining 210 Fenway Sports Group’s units.
In total, The New York Times Company has generated approximately $225 million in proceeds from the complete divestiture of Fenway Sports Group, which is three times the price it had to pay to acquire the same.
Another example of shedding the assets by the company is the sale of Regional Media Group, – consisting of 16 regional newspapers, print publications and associated ventures – to Halifax Media Holdings LLC, the proprietor of The Daytona-Beach News Journal in Florida, for approximately $143 million.
Waning print advertising revenue, in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers and pay more attention to its online activities. The decision to offload the division is also considered part of the cost containment efforts undertaken to stay afloat in this turbulent environment.
The Regional Media Group has long been grappling with shrinking advertising revenue. The recent global economic uncertainty has worsened matters. 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 print advertising revenue and improve market shares battered by the recent economic headwinds, the company launched a pay-and-read model on March 28, 2011, with the intent to augment its digital revenue.
Another media conglomerate, News Corporation (NWSA - Analyst Report) has also moved towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, began charging readers for online content for The Times of London and Sunday Times of London effective June 2010.
Holds Zacks #3 Rank
The New York Times Company remains committed to streamline its cost structure, strengthen its balance sheet and rebalance its portfolio. However, we remain apprehensive about risks that the company faces due to its high dependence on advertising revenue.
Currently, we have a long-term Neutral recommendation on The New York Times Company. Moreover, the company holds Zacks #3 Rank that translates into short-term Hold rating.