What Does Carlos Slim Want With the NY Times?

Critics Question What's Behind Mexican Billionaire's $250M Loan

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NEW YORK (AdAge.com) -- He's the second-richest man in the world, after Warren Buffett -- worth $60 billion by Forbes' measure -- a man who parlayed Mexico's one-time state-owned telephone monopoly into a business empire so dominant that it accounts for a third of the value of the leading Mexican stock market, according to The Wall Street Journal. So, what does Carlos Slim want with The New York Times?

Carlos Slim: Infusion said to be just an investment.
Carlos Slim: Infusion said to be just an investment. Credit: AP
Mr. Slim threw the New York Times Co. a lifeline last week, lending it $250 million to refinance $400 million in debt coming due in May. It was the second major cash infusion in the Times in five months; in September Mr. Slim took a 6.9% stake in the company, an investment that has lost more than half its value since then.

But don't expect the company to call Mr. Slim savior. Despite a recent, overheated Atlantic piece suggesting that the Times could go out of business when that debt comes due in May, New York Times Co. VP-chief financial officer James Follo argued the expiration of one revolving-credit facility is not that big a deal because the Times' other resources -- including its second credit revolver -- are sufficient. "The proceeds are going to be used to refinance debt coming due and provide some flexibility," he said.

But the loan -- which includes warrants to buy shares representing nearly 18% of the company -- makes the Mexican magnate a key player in the future of the world's most storied newspaper. As newspaper analyst Alan Mutter pointed out, the loan puts Mr. Slim in a position to take control of the paper should the Sulzberger family decide to sell, an outcome that would become increasingly likely if the Times cuts its dividend again, choking off the family's main source of income.

Mr. Slim doesn't need the money, and he certainly can't want the scrutiny such a high-profile investment would inevitably bring. So does Carlos Slim want to own the Times?

Brand advocate
Mr. Slim's son-in-law and spokesman, Arturo Elias Ayub, declined to comment, but has said Mr. Slim sees the Times as a good investment and nothing more. "We believe in the strength of the New York Times brand, its national and international reach, its potential for digital expansion," he said in a statement.

But analysts say Mr. Slim's position means he can't be ruled out as a future owner of the paper. "As far as future control, it's unpredictable," said Ken Doctor, newspaper analyst at research firm Outsell. "With his 18%, he could cause trouble."

In the current economic environment, there aren't too many opportunities to make a 14% return on your money, which is the deal Mr. Slim struck with the Times. But using Mr. Slim as lender of last resort came at a price: raising the annual interest expense from $50 million to $74 million.

"Getting a deal of this size done in this market is difficult, and they did the best they could under the circumstances," sad Bruce Benson, managing director of FTI Economic Consulting, which advised Tribune Co.'s lenders as the company filed for bankruptcy protection.

But the addition of Mr. Slim ads a new, more benevolent player to the drama unfolding at the Times. Harbinger Capital Partners, a hedge fund that was the last outsider to accumulate a major position in the Times last spring, used it as a cudgel to force the company to accept two new board members.

'Purely financial investment'
Observers of Mr. Slim believe it would be unlike the mogul to want to take control of the company. "I think he has absolutely zero interest in owning or running The New York Times. He doesn't know the news industry, and he knows it's a risky, declining business. This looks like a purely financial investment," said Geri Smith, BusinessWeek's Mexico bureau chief, who has covered Mr. Slim for 16 years.

For the Times, the decision to take the investment is a little more straightforward. It doesn't change the fact that the company must restructure to compensate for declines in the print business, but it allows it to hold off on selling some assets until credit markets unfreeze.

"Clearly what they're doing is buying time; in 2009, there is no end in sight to the downturn," Mr. Doctor said. "They don't want to sell those assets at fire-sale rates."

The Times is in cash-hoard mode as it looks to compensate for revenue that declined 6.5% in the first nine months of 2008. Ultimately, the Times would like to offload its 17.5% interest in the Boston Red Sox. Other assets could be on the block, such as its About.com. And New York Times Co. confirmed late last week that it was already deep in talks on a deal to sell and lease back part of its new headquarters.

But if the company is trying to demonstrate its stability, Moody's wasn't playing along. The ratings service Jan. 23 cut its rating on New York Times Co. debt by three notches, pushing it well into 'junk' territory.

As CEO Janet Robinson said in December, she expects 2009 to be "among the most challenging years we have faced."

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Contributing: Nat Ives

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