This weekend, The New York Times Co. sold the Boston Globe to John W. Henry, the owner of the Boston Red Sox. Henry paid $70 million. (Or negative $40 million, by more realistic calculations.) Oddly, several other bidders made higher bids than Henry. Why did the NYT Co. leave that money on the table?
The Globe itself reports that three other bidders say that their offers were higher than Henry's. Two of them have local connections, just as Henry does; and one of them says that their bid was at least $10 million higher than Henry's. Here is the total justification that NYT Co. spokeswoman offered for the company's decision to accept Henry's lower bid:
The Times Co., in a statement, said, “The sale to John W. Henry is the result of a very full and active sales process.’’ Spokeswoman Abbe Serphos also said that in reviewing the bids, the Times Co. “took many factors into consideration, and at the end of the process concluded, along with our board of directors, that this agreement to sell the New England Media Group to Mr. Henry was in the best interest of our shareholders as well as of The Boston Globe, the Worcester Telegram & Gazette, and the Boston community.’’
What exactly were the "many factors" that caused the company to conclude that a bid of $70 million was better for shareholders than a bid of $80 million? The company does not say. (A spokeswoman we contacted refused to elaborate on the company statement.)
Is this kosher? We asked Brian JM Quinn, an assistant professor of law at Boston College Law School who writes a blog on M&A law. The short answer is that when a board sells a corporate asset, a court reviewing the sale will presume that the board was fully informed and the decision to sell the asset was in the best interests of the corporation," he told us. "There is no legal duty to seek out the highest price for the asset. The board can decide to sell the asset to any one for almost any conceivable reason."
The rules would be different if the entire company were for sale. But since the Globe is just a small asset of the NYT Co, the company can essentially do what it wants. "Because boards are not required to seek out the highest bid, they can take in all sorts of other factors (constituencies, like the impact on local/state economy, the environment, employees, creditors, whatever)," Quinn said. "For example, they might think that John Henry is more likely to run the business for the long term, rather than lay off reporters. In fact, they might think that Henry has an incentive to hire more sports reporters and make investments in building up the paper. That's enough of a reason. In hindsight, it may turn out to be wrong, but it's enough of a reason for the court to justify its decision to sell to the lower of two bids."
Perhaps the company picked the best bidder. Perhaps it didn't. It's hard to tell without a full recounting of the rationale for accepting a lower bid. All that New York Times Co. shareholders know for sure is that the company just left $10 million on the table. In the newspaper business, that's not nothing. It might behoove the company to at least offer an explanation.