The Economist (2022-02-26) Riva

TheEconomistFebruary26th 2022 Business 63

Privateequityandthepress

Culturevultures

A

merica’slocalnewspapershavebeen
strugglingtostayafloatforyears.Since
2005 roughly2,200ofthemhavefolded.
Private-equityfirms,whichoftenswoop
onbusinessesindistress,havedescended
ontheindustry.TheshareofAmerican
newspapers owned by private-equity
groupsincreasedfrom5%to23%between
2001 and 2019 (seechart).Thecovid-19pan-
demichaspresentednewopportunities
forbuy-outsoftroubledmediacompanies.
Thathasledmanyofthosewhoreadthe
papers,orwriteforthem,tofearthatbuy-
outbarons’readinesstoslashcostsand
seekoutnewsourcesofrevenuewillbe
badfornewsrooms.Newevidencesug-
geststhatthingsarenotquitethatsimple.
Inanewworkingpaper,researchersat
theCaliforniaInstituteofTechnologyand
NewYorkUniversitycomparehownews-
papersthatwerepurchasedbyprivate-
equityfirmshavefaredrelativetothose
thatwerenot.Someofthefindingsseemto
confirmthefearofthosenewspaperread-
ersand writerswhoseeprivate-equity
typesasheartlessvulturecapitalistsun-
concernedaboutdemocracy.
Afterprivate-equitybuy-outs,forex-
ample,newspaperslaidoffmorereporters
andeditors.Acrossasampleof 766 Ameri-
canpublications(accountingforaround
45%oftotalcirculation),payrollswere
about7%lowerafteracoupleofyearsat
thosewithnewprivate-equitycapitalrela-
tivetothosewithoutsuchcapital.There-
searchersalsoidentifieda16.7%relative
declineinthenumberofarticleswritten
withinfiveyearsofthebuy-outs.

Andthefocusofcoverageshiftedfrom

localtonationalnews:theshareofarticles

onlocalpoliticsdroppedbyaboutatenth.

Thatlooksworryinginthecontextofastu-

dypublishedlastyear,byresearchersat

ColoradoStateUniversity,LouisianaState

University and Texas a&m University,

whichconcludedthatwhenreaderscon-

sumenationalnewstheirviewsbecome

morepolarised.Poorlocalcoverageisalso

associatedwithlesscompetitivemayoral

elections,andnewsroomstaffshortages

arelinkedtolowervoterturnout.

Localnewsmay,though,bealosing

battlefromthebusinessperspective.Local

reportingisexpensive,becauseitrequires

journalistsonthegroundandcannotbe

syndicated. Moreover, readers appear

increasingly apathetic towards local

news—asurveyin 2018 bythePewRe-

searchCentre,athink-tank,foundthat

only14%ofrespondentspaidforlocal

papersthatyear—andinsteadseekoutna-

tionalonlinemedia.

Asforthesizeofnewsrooms,things

couldhavebeenmuchworsewereitnot

forprivateequity.Forthestudyalsofound

thatnewspaperswhichhadbeenbought

outwere75%lesslikelytoshutdownthan

iftheyhadn’tbeen.Dailieswerealso60%

lesslikelytobecomeweeklies—acommon

downgradeformanyasufferingrag.

Thestudy’sauthorscautionthatthey

cannotestimatethegeneralcausaleffect

ofprivate-equitybuy-outsonthepress,

butonlytheobservedeffectonthenews-

papers in their sample. Private-equity

firmsdonotpurchasenewspapersran-

domly.Theytargetfailingnewsroomswith

potentialforturnaround;paperswithlow

circulationbuthighadvertisingrates(the

pricechargedtoadvertiserspersquare

inch)werelikeliertobebought.Butforthe

newspapersstudied, thebuy-outsmay

havebeenwhatallowedthemtosurvive.

Theaccompanyingweakeningofnews-

roomsandnationalisationofnewsmaybe

thelesseroftwoevils.

Buy-outfirmsaresnappingup
America’snewspapers

Buying up a storm

United States, private-equity buy-outs

Source:“LocalJournalismunderPrivateEquityOwnership”,

byMichaelEwens,ArpitGuptaandSabrinaT.Howell,,workingpaper

*Fromasampleof7newspapers †Change relative

tonon-buy-outs‡Fromasampleof766 newspapers

25

20

15

10

5

0

191510052001

Shareofnewspapers

ownedbyprivateequity,%

20

10

0

-10

-20

431-1-3-5

Yearsbefore/afterdeal

Private-equity

ownershipdeal

Shareofarticles*

Bytopic,%relativechange†

National

news

Local

news

95%confidence

20

10

0

-10

-20

-5 -1-3 431

Yearsbefore/after deal

Number of employees‡

% relative change†

Editors

Reporters

Private-equity

ownership deal

Investoractivism

Burger flip-out

F

or most ofhis life Carl Icahn was vili-

fied for his abrasive personality and his

activism as an investor. His mother said he

had the spirit of Genghis Khan. Oliver

Stone based Gordon Gekko, a fictional

predator-in-chief of the junk-bond boom,

in part on Mr Icahn. Bill Ackman, no softie,

called him a bully who is not used to some-

one standing up to him, when the two pu-

gilistic financiers fought over Herbalife, a

nutritional-supplements business. He is

most chief executives’ worst nightmare.

Late in life the 86-year-old Mr Icahn

seems to be showing his milder side. This

month hbo, atv network, launched “The

Restless Billionaire”, a largely sympathetic

documentary that tracks his rise from

modest beginnings in Queens to one of

Wall Street’s titans. And on February 20th

Mr Icahn launched a proxy fight for two

board seats of McDonald’s to press the fast-

food behemoth to require its suppliers to

improve their treatment of pregnant pigs.

“Animals are one of the things I feel real-

ly emotional about,” he told the Wall Street

Journal. He reserves especial affection for

pigs, which are unusually clever.

Mr Icahn’s activist strategy typically in-

volves buying sizeable stakes in under-

valued companies and seeking to shift the

management’s focus to cost-cutting. If

managers refuse his demands, he stirs up a

shareholder revolt, launches aggressive

campaigns on social media to win over

public opinion and pushes his own line-up

of board members. Such methods have

boosted the target’s share price often

enough to earn a moniker, the “Icahn lift”,

and let Mr Icahn sell out at a juicy profit.

All this makes his McDonald’s manoeu-

vre look out of character. He owns only 200

of the $186bn company’s shares, worth

some $50,000. And McDonald’s has heed-

ed his demands for better treatment of

pigs, which he first made ten years ago. In

2012 it pledged to stop buying pork for its

McRib and breakfast sandwiches by 2022

from producers who use cramped crates to

constrain sows for all 16 weeks of pregnan-

cy. McDonald’s concedes that it has not

quite fulfilled its pledge, which it blames

on delays caused by the covid-19 pandemic

and outbreaks of swine disease. Yet by the

end of 2022 it expects to source 85-90% of

its American pork from sows not housed in

gestation crates during pregnancy. By the

end of 2024 all of its American pork will

come from pigs housed in larger group en-

What is Carl Icahn’s beef

with McDonald’s?