Times faces shareholder, credit agency pressure

NEW YORK (Reuters) - The New York Times Co (NYT.N) faced renewed pressure over its business strategy on Friday as it posted a steep drop in advertising sales and weaker online growth, coinciding with the start of a proxy battle by a dissident investor group over board seats.

The January results prompted Standard & Poor's to take a negative view of the Times's long term "BBB" debt rating, warning that a "downgrade may not be limited to one notch."

The publisher of the New York Times and International Herald Tribune said its advertising revenue fell 9.8 percent in January. Internet ad revenue rose 8.6 percent, but was slower than monthly growth rates near 20 percent since August.

The data was released shortly after Harbinger Capital Partners and Firebrand Partners filed their proxy to nominate four directors to the Times's board, in a public call to shareholders to accelerate its move into digital media and dispose of non-core assets.

S&P said it would talk to management about their long-term strategy "at a time when there is currently pressure to pursue a more aggressive acquisition policy of online assets."

The Harbinger-Firebrand group has built up a 19.03 percent stake of the Times's Class A shares, which makes it the largest holder of the newspaper publisher's publicly traded shares.

The Ochs-Sulzberger family owns an equity stake of about 19 percent in the publisher of The New York Times and International Herald Tribune, but controls its fortunes by holding 88 percent of privately held Class B voting shares.

"If they play the politics right, they might get a couple of guys on the board," Benchmark Co analyst Ed Atorino said of the dissident group. "But it's a long shot at best."

The Times said it was reviewing the Harbinger-Firebrand nominations and would meet the candidates proposed by the group in the next week or so. The Times has already nominated its own directors in a preliminary proxy filed last week.

Shareholders of the Times's Class A stock elect 30 percent of its 13-member board, or four members. The remaining nine members are elected solely by Class B shareholders.

The group's board nominees are Firebrand founder Scott Galloway, Kohlberg & Co co-founder James Kohlberg, Mayfield Fund managing director Allen Morgan and Helium Group Chief Executive Gregory Shove.

Times shares closed up 0.43 percent at $18.63 on the New York Stock Exchange after falling as low as $18.13 earlier in the session. The shares have risen 26 percent since Harbinger's plan to seek board nominees was disclosed in late January.

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In a preliminary proxy with the U.S. Securities and Exchange Commission, the investor group said its nominees, "will add horsepower and domain expertise to the company's stated strategy of pursuing leadership positions in key content verticals, both print and online, and rebalancing the company's portfolio of properties."

The Firebrand-Harbinger proxy battle is the Times's second shareholder uprising in three years, but does not go as far as previous activist investors, who sought to change the control structure at the publisher.

Instead, this group believes the company can improve its performance by buying digital companies and generating most of its revenue from Web-based businesses within five years.

"I don't know what they can do to change the environment," Atorino said. "The only thing the Times needs is some ad dollars."

The U.S. newspaper industry is grappling with a print advertising slowdown as readers devote more of their time to a multitude of Web news and entertainment sites.

A weakening U.S. economy on the back of a subprime mortgage meltdown is also weighing on advertising, particularly in the real estate and help-wanted segments.

One bright spot at the Times was revenue at its About Group network of Web information sites, which grew nearly 25 percent.

Harbinger estimated it would pay about $750,000 to solicit the proxies from shareholders, an expense it would ask the Times to reimburse.

The Times' shareholder meeting is scheduled for April 22.

A chronology of events can be found on Reuters MediaFile blog at tinyurl.com/ysb2hc

(Additional reporting by Franklin Paul; editing by Lisa Von Ahn/Andre Grenon)