The internet is generally regarded as a threat to the media industry as a whole, with newspapers as its first victims. So at first glance it looks odd that, on October 23rd, at least three private-equity firms reportedly made initial bids to buy the Tribune Group, a conglomerate with a market capitalisation of about $8 billion, which owns three of America’s most prominent newspapers, the Los Angeles Times, Baltimore Sun and Chicago Tribune, as well as several television stations and the Chicago Cubs baseball team.
Private-equity firms are showing a keen interest in the wider media, too. Last week Clear Channel, which has 1,100 radio stations and a market capitalisation of $17 billion, put itself on the block by announcing that it is “evaluating various strategic alternatives”. The Dolan family is trying to take Cablevision, the cable company it founded, private; and Jack Welch, a former boss of GE, reportedly wants to buy the Boston Globe from its owner, the New York Times Company. Talk of an impending purchase of Bloomberg, a data and news service, was so widespread recently that its owner and New York’s mayor, Michael Bloomberg, felt obliged to issue a statement to employees denying it is for sale. There is even speculation that Time Warner and Viacom, two huge media conglomerates, might become targets.
In Europe, VNU, a Dutch media firm, was bought for $11.6 billion earlier this year by two American private-equity firms, the Carlyle Group and Kohlberg Kravis Roberts (KKR). The biggest media deal so far this year was the purchase by a consortium of five private-equity firms of a Spanish-language broadcaster, Univision, for $13.7 billion. There is much speculation about a fresh bid for ITV, a British television network, for NTL, a cable firm, and for Pearson, owner of the Financial Times and part-owner of The Economist—or at least for its Penguin books unit.
In Australia, where new media rules allow foreign ownership, the Packer family firm has put its media arm, PBL Media, into a company jointly owned with a private-equity firm, CVC Asia Pacific. Sir Tony O’Reilly’s Independent News and Media is taking APN News & Media private in conjunction with Providence Equity Partners, a private-equity firm.
Managers and shareholders like these deals because they are frustrated by the public market’s valuations of their businesses. The Mays family has had enough of watching Clear Channel’s share price stagnate; likewise the Chandler clan, which owns 12% of Tribune.
Private-equity firms like media companies better than public markets do. Public markets love a growth story. Private equity appreciates cash flow. Radio and television stations and even newspapers throw off loads of cash, which private-equity firms can borrow against, using this leverage to repay their equity fast. That is true even of businesses whose cash flow is in long-term decline, such as newspapers, as long as the rate of decline is relatively predictable. The biggest risk in many of the current batch of deals is that the private-equity firms discover the cash-flow models to be less predictable than they thought, says Colin Blaydon of Tuck Business School’s Centre for the Study of Private Equity and Entrepreneurship.
Whilst some funds, such as Providence Equity Partners and Elevation Partners, have long focused on media, some of the big, generalist funds have lately been hiring expertise. Carlyle, a possible buyer of Tribune, recently recruited Norman Pearlstein, a former editor-in-chief of Time Inc, to help identify suitable targets.
Private equity may mean better management. Since Cox Communications, a cable firm, went private in 2004, it has benefited from the lack of both short-term market pressure and Sarbanes-Oxley-related interference. KKR has installed a highly-regarded former GE executive to run the hitherto poorly managed VNU. But cutting costs can be hard. The Philadelphia Inquirer’s new private-equity owners found themselves facing a possible strike after they tried to lay off workers. America’s tough restrictions on cross-ownership of different media businesses may pose a further obstacle to restructuring.
Private equity’s biggest advantage today is its access to vast quantities of debt, on what old-time bankers might regard as recklessly generous terms. They can borrow at far higher multiples to earnings than the public stockmarket is willing to sustain. That makes it hard for public companies to compete against private-equity buyers.
It’s a nice position for private equity, but also dangerous. Mr Bloomberg is said to be convinced that private-equity is overpaying, and that when they later face pressure to deliver returns, they will slash jobs to boost short-term profits. He does not want that fate for Bloomberg. Other media owners may be less troubled by such prospects and more interested in cashing in on the seller’s market of a lifetime.