The black ink is turning increasingly red at old-school media companies, as readers and advertisers continue their migration to the Internet. Yet hedge fund and private equity investors keep stepping in to shore up the imperiled sector.
Would-be saviors include Harbinger Capital Partners, a New York–based hedge fund that has taken equity stakes in both the New York Times Co. and Media General, owner of the Richmond Times-Dispatch and the Tampa Tribune . New York–based private equity firm Avista Capital Partners, owner of the StarTribune in Minneapolis, watched that investment go bankrupt in January, the same month activist hedge fund Davidson Kempner Capital Management in New York won control of the Chicago Sun-Times Media Group.
In one of the latest crises, tabloid publisher American Media — whose properties include the National Enquirer and Star magazine — defaulted on $431 million in bonds, prompting a group of the bondholders to trade the debt for a combined 95 percent equity stake in the company in late January. The group included Marc Lasry’s New York–based hedge fund firm Avenue Capital Group, Regiment Capital Advisors in Boston and New York–based Angelo, Gordon & Co. What their 95 percent interest will ultimately be worth is hard to say.
Former equity owners Evercore Partners in New York and Thomas H. Lee Partners in Boston were left with a measly 5 percent stake and losses of $200 million and $300 million, respectively.
“These assets have a long history, and it’s not very pleasant,” says James Harris, CEO of New York–based private equity firm Seneca Financial Group.
Eric Hoff, a senior analyst at Feingold O’Keeffe Capital, a credit specialist hedge fund in Boston, notes that media holdings used to generate a lot of cash that didn’t have to be reinvested in the way that a high-maintenance holding like a steel factory would require. Hoff sums up the underlying problem in what sounds like an epitaph for a media company gone bust: Ad-dependent revenues started falling.
