Filed under: Deals, Marketing and advertising, Private equity, New York Times’A’ (NYT), News Corp’B’ (NWS)

Fortune and BusinessWeek are piling on the story of Harbinger Capital Partners, a $19 billion hedge fund, seeking to take over the New York Times (NYSE: NYT). Harbinger now owns 19% of its Class A shares. Of course, Harbinger is not the only threat to management of the Times — News Corp.’s (NYSE: NWS) Rupert Murdoch is doing his part as well. Will Steve Rattner, a long-time friend of Times publisher Arthur Sulzberger and Managing Principal of Quadrangle Group, come to the rescue and take the Times private?

In play here are Phillip Falcone, a Harbinger partner who made $1.7 billion last year, and the quaint idea of protecting a media company’s founding family by maintaining two classes of stock: Class A for the public to make insiders liquid and Class B for the insiders. Murdoch and Sulzberger enjoy protection for their family dynasties thanks to that two-tiered structure.

Falcone thinks that the Times is leaving large amounts of money on the table by not “monetizing” all the comments on its stories. What sparked this idea was a January opinion piece by Caroline Kennedy comparing Barack Obama with her dad, President John F. Kennedy. There were only a few comments about the article on the newspaper’s Web site, nytimes.com, but there were hundreds on Huffington Post and Digg.com. BusinessWeek quotes Scott Galloway, founder of hedge fund Firebrand Partners and Falcone friend who said: “We came to the collective conclusion that there was so much upside in terms of billions of pages the paper wasn’t monetizing. He [Falcone] never looked back.”

Falcone recently got two of his allies onto the Times’ board. How did he do it? This January, with the stock trading at $15, Falcone bought a 4.9% of the publicly traded Class A shares for $105 million over several weeks. (The Class B shares are held privately by the extended Sulzberger family, allowing them to retain control of the company.) Falcone and Galloway quickly launched a proxy assault, pushing the Times board to add four of their picks as directors. They only backed down in March when the Times concurred to accept two of the nominees for its 15 person board.

If the Times was doing well financially it might not be so vulnerable. Earlier this month, the Times reported that it lost $335,000 in the first-quarter 2008 in a performance that fell far short of both analysts’ expectations and its $23.9 million profit in the 2007 quarter. Its newspaper and on the internet advertising revenues were down 10.6% and digital advertising growth slowed to 16% from 21.6% a year earlier.

Last year newspaper industry ad revenue fell 8% while the Times’ ad revenue fell 4.7%. So it looks like the industry and the Times are doing worse. And its stock has fallen 15% in the last year. Although since Harbinger bought in, the stock has risen 33% to $20.58.

Nevertheless, the Times is under siege and it could use a savior. Will Rattner ride to Sulzberger’s rescue? Rattner is a former Times reporter and Lazard Ltd. (NYSE: LAZ) executive who now runs the $6 billion Quadrangle Group. Vanity Fair reported that Rattner, who raises money for Hillary Clinton, persuaded Sulzberger to endorse Clinton — overruling the Times editorial board.

I don’t think Falcone will be able to reverse what ails the Times with his plan for digital advertising — there’s just not enough revenue there. But he’s already made a nice profit on his shares. Meanwhile, Rattner appears to be the only source of capital who would protect the Sulzberger family in a going private transaction. But I don’t know if the banks have an appetite now for such a deal.

I don’t know what will happen next but it seems clear to me that the Times needs a change in management if it’s going to remain a viable business.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Deals, XM Satellite Radio (XMSR), Sirius Satellite Radio (SIRI), Short stories

Either short sellers don’t think a merger between Sirius (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) will happen, or they don’t believe that the deal will save the two debt-laden companies. Short interest in Sirius rose 20.2 million shares for the period ending April 15 compared with March 31. Total shares sold short hit 157.9 million. Shares short in XM also pushed up 6.3 million to 22.7 million.

The bets might be smart ones. The delay in approving the deal at the FCC has probably made it less likely that the merger will get the green light. A number of members of Congress have loudly protested that the new company would be a monopoly, They reason that a new entity would eventually raise rates sharply because there will be no competition to dampen prices.

The core problem with the merger might be more profound. Subscriber growth rates at the two companies are slowing. Both also have negative net income. At this point, neither company has predicted when it might make a profit.

The biggest burden that the companies have is their debt. Each has over $1 billion in long-term obligation to repay bonds and loans. In a poor credit environment, it is hard to see that paper getting refinanced at superior rates.

A new company, even with some cost savings, could have enough debt to sink it.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Circuit City Stores (CC)

For a company so in the dumps, there seems to be a whole lot of attention focused on Circuit City Stores, Inc. (NYSE: CC) these days. First, Blockbuster, Inc. (NYSE: BBI) offered to purchase the struggling consumer electronics retailer for about a billion dollars recently. Circuit City finally made the offer public. Another celebration that has shown interest in acquiring Circuit City is now demanding the retailer open its books for review.

Wattles Capital Management, which owns a decent chunk of Circuit City’s shares, delivered a letter yesterday to the retailer’s board demanding that it investigate other potential suitors for the company (i.e., seek other interested acquirers), as well as provide open access to the company’s financial operations. One would think that being a public company gives a decent amount of insight into the books already, but Circuit City may be hiding something. Or not. Wattles just wants some feedback from a company that has talked “transformative process” for quarters, but that clearly has no clue how to dig itself out of the hole it is in.

Part of Wattles’ letter to the board yesterday included questions about 1) the fact that some of Blockbuster’s financing could be derived from Circuit City’s own balance sheet, 2) how Carl Icahn could assist in the buyout and 3) Blockbuster’s “very short” due diligence process.

Wattles wants to make sure there are no inside shenanigans going on here that would give Blockbuster very special access to a buyout without considering other parties as potential acquirers of the electronics retailer. It seems more than one party wants to purchase Circuit City these days, and for the fire-sale price of its stock, who could blame any of them?

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