Shareholder to New York Times: Bye-Bye!

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Even institutional investors have only so much patience.

After 10 years, Morgan Stanley (NYSE: MS) has finally given up on New York Times (NYSE: NYT), deciding last week to dump its 10.4 million shares of class A stock. The shares fell to a new 52-week low on the news, and they're down more than 20% so far this year and more than 60% since early 2004.

For several years, Morgan Stanley fund manager Hassan Elmasry had pushed the Times to overhaul its dual-share ownership structure. Elmasry was betting he could convince the Ochs-Sulzberger family, which has owned the paper for more than 100 years, to give up the structure, which enables them to control 70% of the seats on the board. But earlier this year, the SEC ruled that Elmasry could not force the Sulzbergers to put that matter to a shareholder vote.

Young and old alike
Dual-share structures are not just for old-school players like the Times. For instance, Google (Nasdaq: GOOG) is two-tiered, giving founders Larry Page and Sergey Brin and their class B shares 10 votes for every one given to owners of class A shares. Their rationale was simple: As the brainy guys who founded this company, they probably know better than you do how to run it.

At newspapers, dual-share structures are actually quite common. Washington Post (NYSE: WPO), along with McClatchy Newspapers (NYSE: MNI) and Dallas Morning News publisher Belo (NYSE: BLC), all maintain dual shares, and the structure was a bone of contention in the prospective takeover of Dow Jones by News Corp. (NYSE: NWS).

Pros and cons of dual shares
The upside of dual shares is that they free the controlling owners to think big-picture, visionary thoughts, unhassled by money-grubbing second-class shareholders. The downside? Well, there's a good reason this suits the news business.

Historically, newspaper owners have often exerted a strong influence on news coverage, to put it politely. There was William Randolph Hearst and The San Francisco Examiner, for example, and Robert McCormick and the Chicago Tribune. Even Rupert Murdoch has been known to dabble in matters editorial. In these cases, a dual structure enables the owners of the privileged shares to maintain control by outvoting opponents, political and otherwise.

The right answer
So is dual-share ownership good for shareholders? Well, owners of Google probably don't have a problem with it, but in the case of the Times, not so much. And one recent study shows that companies with dual-share structures underperform those with equal shares.

To be sure, the Times is working in a difficult business environment. But not all newspapers are struggling. A few, including The Wall Street Journal and the New York Post, have bucked the slide in circulation and the loss of ad dollars. Likewise, The Washington Post's venture into online education has served it well. Sound strategic moves can at least staunch the flow of red ink.

The Times has diversified as well, with its purchase of about.com in 2005. But its shiny new 52-story headquarters building in Manhattan suggests shareholder concerns may not be at the top of the priority list.

Despite its troubles, The New York Times is still one of the strongest brands on earth. It recently raised its dividend, and it's one of the few remaining newspapers with national circulation in the United States. And who knows, it might eventually turn itself around. But this decision by Morgan Stanley suggests the wait could be a long one.

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