The Economist - USA (2022-02-26)

TheEconomistFebruary26th 2022 Business 63

Privateequityandthepress

Culturevultures

A

merica’slocalnewspapershavebeen
strugglingtostayafloatforyears.Since
2005 roughly2,200ofthemhavefolded.
Private­equityfirms,whichoften swoop
onbusinessesindistress,havedescended
ontheindustry. The share ofAmerican
newspapers owned by private­equity
groupsincreasedfrom5%to23%between
2001 and 2019 (seechart).Thecovid­19pan­
demic has presented new opportunities
forbuy­outsoftroubledmediacompanies.
Thathasledmanyofthosewhoreadthe
papers,orwriteforthem,tofearthatbuy­
outbarons’readinesstoslashcostsand
seekoutnewsourcesofrevenuewillbe
badfor newsrooms. New evidence sug­
geststhatthingsarenotquitethatsimple.
Ina newworkingpaper,researchersat
theCaliforniaInstituteofTechnologyand
NewYorkUniversitycomparehownews­
papers thatwere purchased by private­
equityfirmshavefaredrelativeto those
thatwerenot.Someofthefindingsseemto
confirmthefearofthosenewspaperread­
ers and writers who see private­equity
typesasheartlessvulturecapitalistsun­
concernedaboutdemocracy.
After private­equitybuy­outs, for ex­
ample,newspaperslaidoffmorereporters
andeditors.Acrossa sampleof 766 Ameri­
canpublications(accountingforaround
45% of total circulation), payrolls were
about7%loweraftera coupleofyearsat
thosewithnewprivate­equitycapitalrela­
tivetothosewithoutsuchcapital.There­
searchersalsoidentifieda 16.7%relative
declineinthenumberofarticleswritten
withinfiveyearsofthebuy­outs.

Andthefocusofcoverageshiftedfrom

localtonationalnews:theshareofarticles

onlocalpoliticsdroppedbyabouta tenth.

Thatlooksworryinginthecontextofa stu­

dypublishedlastyear,by researchersat

ColoradoStateUniversity,LouisianaState

University and Texas a&m University,

whichconcludedthatwhenreaderscon­

sume nationalnewstheirviewsbecome

morepolarised.Poorlocalcoverageisalso

associatedwithlesscompetitivemayoral

elections, andnewsroom staffshortages

arelinkedtolowervoterturnout.

Localnews may,though,bea losing

battlefromthebusinessperspective.Local

reportingisexpensive,becauseitrequires

journalistsonthegroundandcannotbe

syndicated. Moreover, readers appear

increasingly apathetic towards local

news—a survey in 2018 by the PewRe­

search Centre, a think­tank, found that

only 14% of respondents paid for local

papersthatyear—andinsteadseekoutna­

tionalonlinemedia.

Asfor thesize ofnewsrooms, things

couldhavebeenmuchworsewereitnot

forprivateequity.Forthestudyalsofound

thatnewspaperswhichhadbeenbought

outwere75%lesslikelytoshutdownthan

iftheyhadn’tbeen.Dailieswerealso60%

lesslikelytobecomeweeklies—acommon

downgradeformanya sufferingrag.

Thestudy’sauthorscautionthatthey

cannotestimatethegeneralcausaleffect

ofprivate­equity buy­outs onthepress,

butonlytheobservedeffectonthenews­

papers in their sample. Private­equity

firms do notpurchase newspapersran­

domly.Theytargetfailingnewsroomswith

potentialforturnaround;paperswithlow

circulationbuthighadvertisingrates(the

price charged to advertisers per square

inch)werelikeliertobebought.Butforthe

newspapers studied, the buy­outs may

havebeenwhatallowedthemtosurvive.

The accompanying weakening of news­

roomsandnationalisationofnewsmaybe

thelesseroftwoevils.n

Buy-outfirmsaresnappingup
America’snewspapers

Buying up a storm

United States, private-equity buy-outs

Source:“LocalJournalismunderPrivateEquityOwnership”,

byMichaelEwens,ArpitGuptaandSabrinaT. Howell,2022,workingpaper

*Froma sampleof 745 newspapers †Change relative

tonon-buy-outs ‡Froma sampleof766 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

fied 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  fictional

predator­in­chief  of  the  junk­bond  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  financiers  fought  over  Herbalife,  a

nutritional­supplements  business.  He  is

most chief executives’ worst nightmare.

Late  in  life  the  86­year­old  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  fight  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  affection  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  cost­cutting.  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 line­up

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 profit. 

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 first 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  fulfilled  its  pledge,  which  it  blames

on delays caused by the covid­19 pandemic

and outbreaks of swine disease. Yet by the

end of 2022 it expects to source 85­90% 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?