One sports business trend to watch: private equity firms led by Silver Lake and CVC are battling it out in a new kind of high-stakes competition for returns: snapping up entire sporting leagues. Go deeper here.
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‘Destroyer of newspapers’ or guardian angel? A hedge fund’s local journalism spree
Stories about the ailing newspaper business usually feature fabulously wealthy benefactors asserting good intentions as the heroes keeping the lights on.
There’s Jeff Bezos and The Washington Post, biotech billionaire Patrick Soon-Shiong and the Los Angeles Times, and Laurene Powell Jobs, the widow of Steve Jobs and the majority owner of The Atlantic.
But as the FT’s Anna Nicolaou and DD’s James Fontanella-Khan report, today about half of America’s newspapers are controlled by private equity, hedge funds and other investment groups after getting caught in the post-2008 financial crisis spin cycle of consolidation.
And one name stands above the rest: Alden Global Capital. The New York hedge fund is notoriously private, as reflected by the particular barrenness of its website.
However, Alden and its president Heath Freeman have received attention from US officials, labour unions, media watchdogs and disgruntled journalists for its swelling portfolio of local papers, of which the firm routinely whittles down with a brutally efficient “zero-based budgeting” strategy, straight from the playbook of Wall Street’s most-feared activists.
Alden has become the “personification of the new vulture capitalism that has invaded what was once, not long ago, a business that cared about its mission and its civic role”, said media industry analyst Ken Doctor.
Some employees of his companies and bankers who have cut deals with him refer to Freeman as the “destroyer of newspapers”, a name fitting for the trail of “ghost newspapers” Alden has left in its wake, a term coined by critics to describe publications stuffed with adverts and wire copy, but void of original journalism, after years of budget cuts.
Freeman doesn’t see it that way, though. “It’s important for people to understand that we actually try saving many newspapers from extinction. And put them on a path to sustainability,” he wrote to the FT in an email, via his public relations adviser.
A spokesperson for MNG, the holding company controlled by Alden, told the FT: “It's a lot easier to make snippy anonymous comments than actually undertake the difficult task of making sure news organisations across America are able to serve their communities during a prolonged period of declining revenues.”
It’s also important to highlight that Alden Capital didn’t invent the ghost paper trade. Small and midsized regional and local newspapers have long been treated as a distressed asset class, bounced around by investors for short-term profits.
Fortress Investment Group, which is controlled by SoftBank, and Chatham Asset Management, the firm run by former Goldman Sachs and Morgan Stanley banker Anthony Melchiorre, are challenging Alden for a spot on the throne.
Now, with its sights set on Tribune Publishing, which owns revered papers such as the Hartford Courant and the Chicago Tribune, Freeman’s critics and competitors alike await his next move.
Has the Fed broken the stock market?
There’s an old fable that tells us if you put a frog in boiling water it will jump out, but if you put it in warm water and slowly turn the heat up, the frog will boil to death.
This is where Seth Klarman, the founder of the hedge fund Baupost Group, thinks investors are. The Federal Reserve is turning up the heat and its dovish monetary policies have “lit the stock market on fire”.
The value investor, who is often compared to Warren Buffett, vented his frustrations in a private letter to clients seen by DD’s Ortenca Aliaj and Eric Platt. The “800-pound gorilla,” as he likes to refer to the Fed, has been throwing its weight around and taking up room where investors such as Klarman would normally participate in financial markets.
To put it simply, Klarman thinks investors have become too complacent about risks and the Fed’s policies are largely to blame. He is effectively telling us that the market is broken.
Here are some quotes from the letter to explain why:
In reference to the Fed’s expanding balance sheet: “These policies and programmes have directly contributed to exceptionally benign market conditions where nearly everything is bid up while downside volatility is truncated. The market’s usual role in price discovery has effectively been suspended”.
“At lower rates, it has seemingly come to pass that the more debt the country takes on, the less it costs to fund. We expect, in due course, that this shall prove unsustainable... ”
“When it comes to the value of cash flows, the vast and limitless future, yet to unfold, has gained considerable ground on the more firmly anchored present.”
“When the Fed goes on offence, there appears to be neither a need to play defence nor any possible reward for it.”
“Investors, facing the certainty of subpar returns on liquid investments, are committing an act of faith by betting that going-in valuations of venture and private equity deals don’t matter, interest rates will never go up, and the economy won’t stumble. But it’s easier these days for investors to project recent trends to the sky than to stand alone believing otherwise.”
Private equity benefits from being extremely online
Leveraged buyouts of traditional retailers have not gone well for big private equity shops.
Ecommerce plays have, unsurprisingly, turned out better. The mix of the two has been volatile to say the least.
On Thursday MyTheresa, the online luxury retailer once part of department store chain Neiman Marcus, debuted its shares, which soared, sending its equity value to almost $3bn.
Neiman bought MyTheresa in 2014 for just $200m. As the FT chronicled last year, the ecommerce site was the central focus of the ugly 2020 Neiman bankruptcy in which creditors alleged that the company and its private equity owners, Ares Management and Canada’s CPPIB, had improperly snatched the online unit from creditors.
That case was settled between a junior creditor group and Ares/CPPIB, where the latter ceded $172m worth of MyTheresa securities to trade claimants and junior bondholders without admitting wrongdoing. (A hedge fund manager, Dan Kamensky, was separately arrested by the FBI over allegations of fraud, extortion and obstruction of justice in the midst of all the chaos.)
Today MyTheresa is owned both by the Ares consortium as well as previous creditors of Neiman, all of whom must be thrilled at today’s public market reception (Ares had said in 2020 that creditor valuations of MyTheresa at $900m were “astronomically high” and had “no resemblance to reality”).
Still, MyTheresa has a long way to reach the heights of Chewy, one of the biggest ecommerce success stories in a record year for online shopping.
BC Partners’ multi-billionaire dollar buyout of PetSmart was floundering just a few years ago, but the pet supplies chain and BC teamed up to make a similar online bet on pet e-retailer Chewy in 2016. After settling creditor allegations of asset-stripping, the website went public and today has a market capitalisation exceeding a staggering $40bn.
MyTheresa’s online offerings seem to be off to a good start, though, if the $510 Moncler dog gilet available for purchase is any indication.
EG Group, the UK petrol stations company whose billionaire owners are buying supermarket chain Asda, has appointed retail veteran Stuart Rose as its new chairman to improve governance after its auditors resigned over the matter last year.
Skadden Arps has hired Raquel Fox as a member of the firm’s SEC reporting and compliance practice. She previously served as a senior adviser to SEC chairman Jay Clayton.
The US Treasury Department has made a series of senior hires. You can view them here.
The UK Takeover Panel has appointed former Slaughter and May senior partner Chris Saul as the new chair of its code committee, replacing Richard Murley ahead of his retirement. Michael Hatchard, a former partner at Skadden Arps, will also join the panel in May as a member of the hearings committee.
Tate & Lyle has recruited Vivid Sehgal as its new finance chief effective in May. He replaces Imran Nawaz who is departing to become chief financial officer of Tesco.
Jack is back The Chinese billionaire is back after a mysterious three-month disappearance from public view, but not necessarily with a vengeance. (FT)
Fannie and Freddie’s fumble With Donald Trump in power, hedge funds rolled the dice on the privatisation of the US mortgage-finance giants. That option now seems off the table and the likes of Bill Ackman and John Paulson are feeling the burn. (Wall Street Journal)
Silicon Valley hits at Hollywood’s wallets The movie business rewards stars and A-list directors when films smash it at the box office. But in a world of shuttered cinemas and straight-to-streaming, technology companies are the ones raking in the extra cash. (Bloomberg)
Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to firstname.lastname@example.org
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