The New York Times (NYSE: NYT) is in negotiation to sell its website About.com to Answers.com for approximately $270 million.  The deal has not been finalized yet, but sources say that Answers.com has signed a letter of intent to complete the transaction.  New York Times primarily competes with News Corp (NASDAQ: NWS) in the newspaper and media space.
Should the deal go through, New York Times will have sold another part of its business that it perceives to be of low value. Earlier this year, the company sold its regional newspaper division and its stake in Fenway Sports Group. If About.com is sold for $270 million, as speculated, New York Times will have sold it for substantially less than the $410 million that it paid to buy the business in 2005.
Sale would increase cash flow from operations
According to our estimates, About.com makes up approximately 5% of the company’s value. The division has been struggling to maintain profitability, posting a revenue decline of 8.7% and net operating loss of $187 million last quarter. Additionally, the company wrote down the value of the segment to $173 million. Selling a division which is burning cash will not only provide a current cash influx, but also will increase the company’s cash from operations going forward.
Renewed focus on core business
We estimate that digital and print offerings are the biggest part of NYT’s business, making up about 40% of its total value. We view the company’s strategy of selling its fringe divisions to focus on its core business practices as a positive sign. New York Times is facing negative secular trends in regards to its print business, but additional focus on its digital offerings could pay dividends over the long term. The cash generated from the sale of About.com could be reinvested to improve its digital offerings.
We currently have a $8.14 Trefis price estimate for New York Times, which is approximately 8% below the current market price.Notes:
- The New York Times Company Confirms It Is in Discussions to Sell Its About Group, NYT Press Release [↩]
- The New York Times Is About to Say Goodbye to About.com, AllThingsD [↩]