Cashing in on the Times

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By Brett Arends, WSJ.com and MarketWatch

BOSTON (MarketWatch) -- You're Carlos Slim Helu, and you're laughing.

Not only did Forbes magazine just name you the world's richest man. But you're happy in the knowledge that you just took The New York Times Co. /quotes/comstock/13*!nyt/quotes/nls/nyt (NYT 8.74, +0.03, +0.34%) for at least $100 million.

Enjoy.

The Mexican tycoon's one-two punch came at the end of last week. At 70 he toppled Warren Buffett and Bill Gates from the top of Forbes' capitalist roster. The telecom tycoon's estimated net worth is about $53.5 billion, according to the magazine. Read more about Carlos Slim Helu.

But more interesting in many ways is the news related to the New York Times, which was quietly confirmed in the fine print of the company's proxy statement.

The skinny: By early last year the Times had become so desperate for cash it had to go cap I hand to Slim, and agree to utterly humiliating terms.

First, in return for a $250 million loan, he was granted annual interest of 14.1%. - at a time when inflation was almost nonexistent. That works out at about $35 million in interest a year. The Times said the interest consisted of 11% in cash and 3% in additional bonds. Once upon a time, an interest rate that high might have run afoul of usury laws. Indeed, Arthur Sulzberger, the chairman of the Times, might have gotten a better deal borrowing the money on a credit card.

And it didn't end there.

The deal, struck near the lows of the market early last year, also included granted Slim 15.9 million warrants over New York Times stock at an exercise price of $6.36. Since then Times shares have rallied, with the market, well above $11.

Bottom line: Slim has already made a paper profit of $77 million just on the warrants.

And if you count the interest, it means he's already made back about $112 million on his $250 million loan in the first year -- and still holds the note paying 14.1% interest.

That's quite a deal.

Why was the Times in such a financial mess a year ago that it had to give away the store?

Certainly, nobody is blaming Sulzberger, nor Chief Executive Janet Robinson, for the financial crisis that froze credit markets.

Nor, even, for the crisis that has hit all newspaper companies, including the Times, Gannett Co. /quotes/comstock/13*!gci/quotes/nls/gci (GCI 13.18, -0.07, -0.53%) , and News Corp. /quotes/comstock/15*!nws/quotes/nls/nws (NWS 14.79, +0.17, +1.16%) , the publisher of the Wall Street Journal and parent of MarketWatch.

However the management of the Times had years to prepare for the industry turmoil, and to strengthen their balance sheet. Instead they spent a fortune paying out dividends and buying shares at elevated prices, even while the cash flow turned red. From 2005 through 2008, according to FactSet, the Times paid out more than $400 million in dividends.

Woe betide any Times reporter who makes a mistake. Even the most trivial error of detail will lead to a painful correction in the paper. Management keep an ominous list of offenders. Those who make more serious blunders are apt to find themselves merrily flogged by Clark Hoyt, the public editor, in his column.

Will Hoyt write a column about how management handled the company's cash flow? It would make an interesting read.

Brett Arends is the author of "Storm Proof Your Money," on managing your finances in this era of turmoil.