Morgan Stanley Sells NYTCO Stock

by Erik Sass, Oct 18, 2007, 8:00 AM

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After several years of acrimonious debate, Morgan Stanley has sold its 7.2% stake in the New York Times Company, CNBC reported Wednesday, citing sources familiar with the decision to sell. The sale follows repeated protests from Hassan Elmasry, a vocal Morgan Stanley portfolio manager based in London, against the NYTCO's two-tiered share voting structure, which allows the Ochs-Sulzberger family to retain effective control of the company.

Morgan Stanley's sale of 10.5 million NYTCO shares was worth about $198.4 million. There is some speculation that Morgan Stanley's move may encourage the NYTCO to eventually take the company private. Over the last two years, Elmasry has called for the abandonment of the share structure, in which regular shareholders receive Class A shares with only 30% of the total vote, and the Ochs-Sulzbergers hold Class B shares controlling the remaining 70%. In the lead-up to a 2006 shareholder meeting, Elmasry urged the company to revise the system; when it refused, he withheld his votes and urged other shareholders to do the same.

Elmasry also suggested in a letter to the NYTCO board that the dual-class share structure was being abused "to entrench [Ochs-Sulzberger] family control and employment."

In a separate missive, Elmasry added: "Our motivating concern is that without independent action by the board and real evidence of sustained accountability, further strategic missteps, capital misallocation, franchise abuse and overly generous compensation are inevitable. We are also concerned that the sharp deterioration at The Boston Globe may well be a preview of what will eventually happen at The New York Times." The New York Times Company has yet to announce its third-quarter results, but its poor performance in the first half of the year, and the continuing secular downturn in the newspaper business as a whole, suggest the earnings announcement on October 23 will be mostly negative.

Elmasry's persistent criticism eventually drove the Ochs-Sulzbergers to tit-for-tat retribution in February, when the family withdrew their personal investments from Morgan Stanley's management. The move was said to involve assets worth hundreds of millions of dollars.

Although Morgan Stanley and NYTCO have now parted ways, the newspaper company faces continued opposition to its two-tiered voting structure from other shareholders, galvanized by Elmasry's opposition. Before the most recent shareholder meeting on April 24, Institutional Shareholders Services advised all NYTCO shareholders to withhold votes in the election of four directors at the annual shareholder meeting as part of another boycott engineered by Elmasry.

In a note explaining its stance, ISS wrote: "Shareholders are left with few avenues through which to voice their opinion other than by withholding from Class A directors."

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