ValueAct takes stake in NYTimes, says paper could grow strongly

© Reuters. FILE PHOTO: A taxi passes by in front of The New York Times head office in New York, February 7, 2013. REUTERS/Carlo Allegri/File Photo

By Svea Herbst-Bayliss

(Reuters) -ValueAct Capital Management disclosed on Thursday it has built a nearly 7% stake in the New York Times Co and thinks the newspaper company could grow more quickly by aggressively offering its all-access digital bundle that gives readers more than basic news.

The investment firm announced the new position in a regulatory filing on Thursday and told its own investors in a letter that the newspaper has ways to thrive despite headwinds facing the industry.

ValueAct said its research has determined that subscribers would be willing to pay a premium for the bundle, which includes Cooking, Games, product review website the Wirecutter, and sports website The Athletic, in addition to the news.

"This is an opportunity we believe management needs to drive with urgency, as it is the biggest lever to accelerate growth, deepen the NYT's competitive moat, and ensure long-term strength and stability of the platform," ValueAct's letter said.

The San Francisco-based investment firm declined to comment on the investment. In its filing, ValueAct said -- and a New York Times spokeswoman separately confirmed -- that it has had discussions with the New York Times, "and anticipate having further discussions."

The New York Times spokeswoman said the paper speaks regularly with shareholders about "our strategy and how we believe we can drive significant shareholder value moving forward."

News of the investment sent the New York Times' stock up more than 11%. Over the last 52 weeks the company's stock price has fallen 25.5%.

ValueAct said in the letter that the New York Times could see strong double-digit digital revenue growth and margin expansion by up to three times.

Bloomberg first reported the new investment moments before the company made its regulatory filing in which it said it owns a 6.7% stake and believes the company's shares are undervalued.

ValueAct in its filing said it owns 11,014,741 New York Times Co shares, which were acquired from June 13 through Aug. 11 at prices ranging from $29.17 to $32.10.

Unlike other investment firms that push for change publicly and often ask for board seats at target companies, ValueAct prefers to work with management behind the scenes. It has been investing more frequently in Japan in recent years but has also made investments in iconic American companies including Microsoft (NASDAQ:MSFT) and Citigroup Inc (NYSE:C) in the last years.

The New York Times has a dual-class share structure, including one class that is publicly traded and another that is held largely by the family of Adolph Ochs, who bought the newspaper in 1896. The family has argued that the structure protects the company's long-term stability.

The New York Times publishes daily and had about 9.2 million paid subscribers, including about 8.4 million digital-only subscribers at the end of the second quarter.