Activsts Target Corporations That Provide The News

Under pressure from activist investors K Capital Management LLC of Boston, newspaper group Sun-Times Media Group Inc. announced last month it was considering a sale of assets. K Capital, the company's largest shareholder, with a 9.7% stake, has been one of the most vocal advocates for a sale. Last month, the hedge fund demanded a "radical restructuring" of the board and repeated its demands for a sale. A sale may soon be forthcoming, but don't expect this to be the last news organization to be targeted by activists.

K Capital Management is one of a growing number of activist hedge fund managers targeting newspapers, wire services and other news media corporations over the past couple years. Since 2005, Knight Ridder Inc., Time Warner Inc., CNet Networks Inc., Reuters Group plc and The New York Times, all corporations that provide news, have all become the focus of activist hedge fund managers.

Some common activist arguments associated with their campaigns: the newspaper industry has had a difficult time of late with revenue growth as advertising dollars migrate away from traditional newspapers to the Internet and other media. Meanwhile with new media companies, the complaint is that they haven't captured the ad dollars quick enough.

The most high profile activist hedge fund success in recent years is Private Capital Management's campaign to press Knight Ridder Inc. to auction itself to the highest bidder. By November 2005, Private Capital held an 18.9% Knight Ridder stake. Shortly after that Southeastern Asset Management Inc. converted its passive stake into an active 13D. By June 2006, the activists got what they really wanted when Knight Ridder completed an auction and closed a deal to sell itself to Sacramento, Calif.-based newspaper publisher McClatchy Company for $4.5 billion.

Another recent high profile activist campaign is taking place at the New York Times Co., where Harbinger Capital Partners and Firebrand Partners LLC, alleging a flawed digital strategy, have been seeking to nominate a minority slate of director candidates to the board. Separately, activist investor Jana Partners has been agitating for change at CNET Networks Inc., a San Francisco-based media and technology news company.

Jana Partners has also taken on Time Warner Inc., following in Carl Icahn's footsteps. Icahn launched an effort to have the media giant split up, but only succeeded at having the New York based company expand its stock buyback program, repurchase $20 billion in shares by the end of 2007 and cut $1 billion in costs. Icahn told CBS's 60 Minutes in a program that aired Sunday that despite the fact he didn't succeed in having the company split up, he still faired ok. "It's a little bit of he who laughs last. I mean, well you know, maybe I made a mistake but I made $300 million on it. So is that too bad? Okay. I mean you know, so I guess I was wrong," he told 60 Minutes.

Meanwhile in 2007, Children's Investment Fund turned its attention to news and data information provider Reuters Group plc, a financial data provider and newswire service, which later agreed to merge with Thomson Corp. for $17.2 billion. The deal was approved by federal regulators in February, and is expected to close soon.

Recent insurgencies at Yahoo! Inc. show that even with new technology media organizations, this trend of activist funds taking on news organizations is here to stay. - Ron Orol