How Carlos Slim made $150 million from the NYT

By Felix Salmon
October 3, 2010
pay back the $250 million loan from Carlos Slim three years ahead of schedule.

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The New York Times is going to pay back the $250 million loan from Carlos Slim three years ahead of schedule. It’s very expensive debt, so it makes sense that it should be the first debt to be paid down. But this also turns out to have been a great deal for the Mexican billionaire, if you look at the terms of the deal.

For one thing, he’s getting a 14.053% coupon for three years. That’s $105,397,500 right there. And then on top of that, the call option which allows the NYT to repay the bonds three years early is exercisable at 105 cents on the dollar. So Slim’s principal repayment is going to be $262.50 million, not $250 million. There’s another $12.5 million for Slim.

Finally, Slim gets warrants for 15.9 million shares at a strike price of $6.3572. Plugging the relevant numbers into a basic options calculator, I get an option value of $2.179 per share. (I don’t have easily-available volatility numbers for NYT shares, so I’m using the 22.5% level of the VIX, a share price of $7.85, and an option expiry date of January 2015, or 4.25 years from now.)*

So add on another $34,646,100 for the value of the options, and you get a total return on Slim’s $250 million investment of $152,543,600 over three years.

In fact, that number is something of a lower bound. The NYT had an option to pay 3 percent of the coupon in kind, rather than in cash; if it did that, then Slim would have ended up with even more bonds, which are now going to be paid off at 105 cents on the dollar.

And that doesn’t even include the strategic value of becoming the single-largest non-family shareholder of the New York Times Company.

All of which only serves to underline the dire straits in which the NYT found itself at the beginning of 2009. If the company had been able to spend $150 million on the newspaper, rather than on Carlos Slim, then it probably wouldn’t today be sprinting towards implementing its financially-dubious paywall. The NYT is now making new investments, most visibly in Andrew Ross Sorkin’s Dealbook franchise. But the paywall won’t help Dealbook one bit. Maybe Sorkin should borrow some money from Carlos Slim to buy off the NYT’s executives and keep Dealbook free.

*Update: Thanks to Mark, in the comments, who says that current implied volatility for NYT stock is just over 50. Which would put the value of Slim’s options at $3.596 apiece, or $57,176,400 in total. Which means that Slim’s total return on his investment reaches $175 million, not $150 million.

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