[governance] Private Equity Acquisitions in Media and Telecom: CITI meeting September 28, 2007

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Private Equity Acquisitions in Media and Telecom: Implications for Investing,
Valuations, and Public Policy 

Event: September 28, 2007 

Columbia Institute for Tele-Information (CITI) 
Columbia Business School 

Ref:
http://www.citi.columbia.edu/events/privateequityandmedia.htm
-

Today, a second wave of media and telecom privatization is sweeping the world,
this time without much public notice. 

In the past year or two, private equity firms have acquired major media and
communications companies. These include Clear Channel, MGM, Univision, and
PanAmSat in America; VNU/Nielsen in the Netherlands; TDC in Denmark; Eircom in
Ireland; ProSiebenSat in Germany, and SBS in Luxembourg. 

Private equity has been in the ascendancy, buoyed by cheap debt, rising equity
prices, and high liquidity. In 2006, almost a quarter of all M&As was financed
in that way, with over 2,500 deals worth $655 billion worldwide. Talent has
flocked to PE firms, from ex-CEOs to presidents, prime ministers, and
regulators. Major business opportunities exist. 

This trend has raised questions of financial and policy analysis. There are
additional considerations for media and communication firms. For example, PE
may be less likely to undertake major upgrades of communications media
infrastructure. These business and policy issues will be the subject of CITI's
conference.
-

Private equity is a problem for public media
By Eli Noam
Published: February 19 2007

When many telecommunications and television networks were privatised in the
1980s, there was much public debate. Today, a second wave of media
privatisation is sweeping the world, this time without much public notice. It
is the acquisition by private equity partnerships of stock market-traded
“public” media companies.

In the past year or two, private equity firms have acquired big media and
communications companies. These include Clear Channel, MGM, Univision and
PanamSat in the US; VNU in the Netherlands; national telecom carriers Eircom
and TDC in Ireland and Denmark; television companies ProSiebenSat in Germany
and SBS in Luxembourg. Other companies, such as -Vivendi, EMI and parts of the
Tribune Co, have been circled by private equity firms. Still others, such as
Bertelsmann and Cox, were taken fully private by their majority shareholders.

Private equity has been in the ascendancy, buoyed by cheap debt, rising equity
prices and high liquidity. In 2006, almost a quarter of all mergers and
acquisitions were financed that way.

This trend has raised questions. Many private equity deals are fuelled by a
desire to flee closer regulation and disclosure requirements of public
companies. This reduces the transparency of the economy, even as it may make
some companies more efficient.

There are additional considerations for media companies. On the positive side,
private equity deals often lead to a break-up of media conglomeratesto reduce
debt that paid for the acquisition. Thus, Clear Channel, poster boy for media
concentration, isselling off almost half of its 1,100 radio stations.

On the negative side, the same cost-cutting has impacts on newsrooms, film
budgets and re-search and development. Unlike start-up venture capital, this
kind of private equity is basically conservative in its search for cash flows
to meet debt payments and position the company for resale. It is also
short-term orientated and unlikely to undertake big upgrades of communications
infrastructure that have long-term benefits for the economy.

Private equity also changes the nature of media ownership. Public attention has
centred on moguls such as Rupert Murdoch and Sumner Redstone, Viacom chairman.
In reality, most media companies have been majority owned by institutional
investors*. Just the top 10 of these institutions, such as Fidelity, together
own more than 20 per cent of the 20 largest US media companies. But they rarely
interferewith managers beyond pressure to keep the stock price up. Management
is accountable to all shareholders and scrutinised by the public, investment
analysts and the press.

But a private equity fund’s management company controls the acquired media
company fully and installs management with tough performance mandates.
Increasingly, private equity fund partners play a hands-on operational role
beyond the merely financial. In contrast to public institutional funds, the
private equity fund is limited by law and strategy to deep-pocket investors
whose identities are not disclosed. The funds keep a low profile.

For example, Thomas H. Lee Partners, a $20bn (£10.2bn) Boston private equity
firm that has acquired singly or in partnerships the media companies Clear
Channel, Univision, VNU, Houghton Mifflin and Warner Music, does not appear to
maintain a website. Little information is available to the press. Securities
analysts stop following the stock. Small investors and activists have no public
shareholder meeting to probe management.Governments cannot evaluate the
soundness of companies that may provide essential national infrastructure.

All this raises questions about openness, transparency and control. In open
societies large media holdings must be in the open. Direct regulation by
government of media operations is undesirable. But disclosure is another
matter. For example, the managing owners and substantial investors in media
companies that hold government licences or use favourable postal rates for
press mailings should be part of the public record, as should their nationality
and the debt burden put on essential network infrastructure.

The role of media is to inform and shine light; their own structures cannot be
secretive. Otherwise accountability becomes impossible, suspicions abound and
the credibility of all media will suffer.


* Eli M. Noam, Media Ownership and Concentration in America, Oxford University
Press, forthcoming

The writer is professor of finance and economics at Columbia University 

Financial Times Art.:
http://www.ft.com/cms/s/50ca3cb0-c01e-11db-995a-000b5df10621.html
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