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Room to breathe

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By Steven Syre
Globe Columnist / July 7, 2009
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There are all kinds of sellers of big-ticket items. Some are indifferent and others are desperate. The New York Times Co. comes across as highly motivated and a little too aggressive.

Of course, the Times Co. is trying to sell The Boston Globe along with its other New England newspaper property, the Worcester Telegram & Gazette. If you’re not interested in newspapers, there is also the company’s 17 percent interest in the Boston Red Sox, which the Times Co. has been trying to move with remarkably little success.

The process of selling the Globe was being hustled along at top speed. The company hadn’t even settled its last and most important labor negotiation, no minor detail, when it asked for initial bids by tomorrow (a union vote is scheduled July 20). Now the process is on hold and people are getting more time to prepare offers.

So what would a sale accomplish for the Times Co. and how badly does it really need a transaction? The circumstances aren’t as dire as you might think, or as they actually were several months ago when the company presumably committed to selling the New England papers.

Like every other newspaper company, the Times Co. has big problems. It’s trying to survive the worst advertising market in generations. On top of that, the Times Co. is lugging around a pile of debt that totals just over $1 billion. Weak revenues and big debt payments are a very bad combination.

But the Times Co. has done a lot of work reorganizing obligations and some of its assets this year. The company struck a sale-leaseback deal for its Manhattan office building and borrowed more money on expensive terms from Mexican billionaire Carlos Slim. Now most of its debts come due in 2015 or later. Efforts to sell the Red Sox stake have been one more attempt to raise cash.

The Times Co. also cut operating costs across the board and eliminated its common stock dividend to save more money.

All that doesn’t add up to anything like a solution, but it gives the Times Co. more financial breathing room for now.

“The Times gets a lot of criticism, but they’ve moved to cut costs across the board and [are] doing things I think might have been unthinkable not that long ago,’’ says Barry Lucas, senior vice president of research at Gabelli & Co.

Now the sale of the Globe and the Telegram and Gazette is on the table. Unlike other sales designed to raise as much money as possible, this transaction is all about escaping the prospect of more expensive bad news in the future. Figure in $200 million of unfunded pension liabilities the Times Co. is prepared to eat, the real sale price might be next to nothing.

The two papers, known by the Times Co. as its New England Media Group, have suffered through terrible advertising declines. Ad revenue fell nearly 32 percent in the first quarter of this year alone. The Globe was reportedly on track to lose $85 million this year, a figure that apparently included one-time charges and noncash expenses such as depreciation and amortization.

But the Times Co. is selling at the bottom of the market, and a very slight improvement in advertising would make a big difference in Boston and Worcester. Besides, deep cost cuts may have already gotten the Globe close to running on a true break-even basis in today’s dismal market. Does that sound like smart time to auction off the newspaper?

Smart or not, it is a decision to reduce risk at a company that has way too much of it. The Times Co. wants to pay its bills and protect The New York Times newspaper. The loss of anything else would be unfortunate but negotiable. That includes the Globe.

“Once they’ve made the decision to do it, which they apparently have, the sooner it can happen the better,’’ says newspaper industry analyst John Morton.

Declines in ad revenues in New England may be leveling off, but it’s hard to tell because the Times Co. stopped reporting monthly figures in January. The latest Times Co. quarterly financial report will be released July 23. Looking forward, advertising might improve but who’s to say? Times Co. executives talk about hopes for a second-half rebound, but they’re not going to bet the farm, or the Times Co., on a real newspaper business recovery anytime soon.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.