The New York Times Company (NYSE:NYT) announced in February that it was looking for potential buyers for its New England Media Group, which includes newspapers such as the Boston Globe and the Telegram & Gazette. If successful, the sale of these properties will complete its divestiture of non-core assets as it has already sold the About Group and its Regional Media Group last year.
This is the second time when NYT had invited bids for The New England Media Group, and the round of bidding concluded on June 27th. ((At least six groups submit bids to buy The Boston Globe, June 27th 2013, www.bostonglobe.com)) At least six groups are believed to have submitted bids to buy the Boston Globe, according to people involved in or briefed on the offers. This sale is likely to fetch a price that is about a tenth of the $1.1 billion price tag that NYT paid in 1993, a sign that shows the deterioration of the newspaper industry. Revenue for the New England Media Group has been sliding and fell 6.7 % y-o-y to $85.2 million in Q1 as print circulation and advertising continues to struggle.
The sale of the New England Media Group will ease the pension liabilities burden from NYT’s balance sheet. Additionally, this sale will also infuse the New York Times with cash that can be used for boosting its digital content.  We believe that this strategy will be the primary driver for turning the company around, and a focus on its core brand will help New York Times grow its user base and improve subscription revenue going forward.
Digital Subscription Can Get A Boost From Fresh Investment
According to the Newspaper Association of America (NAA), print circulation declined by 14% in 2012. However, an increase in digital subscriptions offset this decline, and the newspaper industry reported 2% increase in circulation revenues. According to our estimates New York Times’ print circulation and digital subscription is the biggest contributor to the company’s value at almost 50%. This division’s revenues grew by 6.5% in Q1 FY13 as digital subscriber growth offset declines in print subscribers. This was driven by an 8% increase in New York Times’ circulation revenue while the Boston Globe’s circulation revenues declined by 2% during the quarter.
With the sale of the New England group, we expect NYT to report growth in its circulation business as this has been losing circulation for the past few quarters. Additionally, NYT announced that it plans to leverage its brand popularity to expand abroad and rope in new digital subscribers. Cash from this sale can be used for this expansion plan and aid in growing its digital footprint outside of the U.S. Moreover, since New York Times’ main asset is its news that it provides, it can use some of the cash from this sale to improve its online content. Online content is important for NYT because if the quality of its content deteriorates or competition catches up with it, the company could struggle to maintain its digital subscribers. As a result, we believe that cash from sale of New England Media group can help boost its digital subscriber base.
Focus On NYT Brand
With national print ad spending and newspaper circulation on the decline, the New York Times’ brand value along with its digital subscriber growth is central to its business health going forward.  The firm faces intense competition in the online newspaper industry and will have a hard time attracting and retaining digital users if it is unable to maintain the strong quality of its content. Therefore, NYT needs to bolster its online content with new content offering. Earlier, NYT had launched online video content for its websites. With the potential sale of New England Media Group, management can now plow back more resources for improving its content library further and focus on improving its online services.
We expect that NYT will announce the sale of The New England Media Group to one of the six bidders soon. Until then, we will be closely following any new developments in this segment. We currently have a $8.20 price estimate for New York Times, which is approximately 10% below the current market price.Notes: