It's almost like someone should write a book about it
August 7, 2023 6:15 PM Subscribe
Paramount announced that, after the Justice Department successfully sued to block Penguin from purchasing Simon and Schuster late last year, that the have sold the publisher instead to KKR for $1.6 billion. Clearly everything is fine, and there is nothing to worry about...
KKR? Who is that? Well, do you remember Toys R Us? Do you remember feeling kind of sad that the chain declared bankruptcy previously in 2018, citing an inability to compete in the modern marketplace, but it was pretty clear that the real reason for their closure was the need to service the $5 billion in debt KKR used to buy the chain. Initially, due to bankruptcy protection, the company's 31,000 employees lost their jobs with almost no warning, receiving no severance pay. After threats of lawsuits, KKR and Bain ponied up $20 million (though $70 million had been asked for) to create a fund for former employees. A lawsuit by creditors alleged that the board of Toys R Us had defrauded investors, creditors, and suppliers, was settled only last year.
But wait, there's more! In fact, you might remember KKR from such hits as Barbarians at the Gate, first a book, then an HBO (remember them?) made-for-television movie about the leveraged buyout of RJR Nabisco.
Why bring any of this up? Maybe it will all make sense when we start to hear stories about how Simon and Schuster was a valuable part of history and we're all sad about its closing.
KKR? Who is that? Well, do you remember Toys R Us? Do you remember feeling kind of sad that the chain declared bankruptcy previously in 2018, citing an inability to compete in the modern marketplace, but it was pretty clear that the real reason for their closure was the need to service the $5 billion in debt KKR used to buy the chain. Initially, due to bankruptcy protection, the company's 31,000 employees lost their jobs with almost no warning, receiving no severance pay. After threats of lawsuits, KKR and Bain ponied up $20 million (though $70 million had been asked for) to create a fund for former employees. A lawsuit by creditors alleged that the board of Toys R Us had defrauded investors, creditors, and suppliers, was settled only last year.
But wait, there's more! In fact, you might remember KKR from such hits as Barbarians at the Gate, first a book, then an HBO (remember them?) made-for-television movie about the leveraged buyout of RJR Nabisco.
Why bring any of this up? Maybe it will all make sense when we start to hear stories about how Simon and Schuster was a valuable part of history and we're all sad about its closing.
And the solution is simple - make it so that debt incurred in a leveraged buyout is non-transferable.
posted by NoxAeternum at 6:33 PM on August 7, 2023 [33 favorites]
posted by NoxAeternum at 6:33 PM on August 7, 2023 [33 favorites]
Same guys just bought Libby/Overdrive I think?
posted by seanmpuckett at 6:33 PM on August 7, 2023 [14 favorites]
posted by seanmpuckett at 6:33 PM on August 7, 2023 [14 favorites]
Make it so the debt payments are not tax deductible.
Private equity is basically a tax dodge and shifts corporate taxation to the incomes of middle and lower classes as they reduce the numbers of the middle class and raise prices for everyone.
posted by jamjam at 6:47 PM on August 7, 2023 [29 favorites]
Private equity is basically a tax dodge and shifts corporate taxation to the incomes of middle and lower classes as they reduce the numbers of the middle class and raise prices for everyone.
posted by jamjam at 6:47 PM on August 7, 2023 [29 favorites]
I want a "print books on demand machine" for my life. Like one that I can choose an edition and it does the right cover and everythang done right here.
I want that thang instead of this mess.
posted by MonsieurPEB at 6:52 PM on August 7, 2023 [1 favorite]
I want that thang instead of this mess.
posted by MonsieurPEB at 6:52 PM on August 7, 2023 [1 favorite]
Same guys just bought Libby/Overdrive I think?
Fuck! What? No!
I mean, the apps aren't great but leveraged buyout guys are as bad as cancer.
posted by wenestvedt at 6:54 PM on August 7, 2023 [11 favorites]
Fuck! What? No!
I mean, the apps aren't great but leveraged buyout guys are as bad as cancer.
posted by wenestvedt at 6:54 PM on August 7, 2023 [11 favorites]
From the New Yorker:
Rakuten, the maker of the Kobo e-reader, bought OverDrive for more than four hundred million dollars, in 2015. Last year, it sold the company to K.K.R., the private-equity firm made famous by the 1989 book “Barbarians at the Gate.” The details of the sale were not made public, but Rakuten reported a profit of “about $365.6 million.”posted by wenestvedt at 6:56 PM on August 7, 2023 [7 favorites]
Same guys just bought Libby/Overdrive I think?
Finalized in June 2020, it seems. Libby is adequate and hopefully will remain pretty alright!
Relatedly, the Wikipedia pages are suspicious AF. Stop referring to Libby as an "award-winning app"! The citation doesn't even talk about any awards!
posted by Baethan at 6:57 PM on August 7, 2023 [5 favorites]
Finalized in June 2020, it seems. Libby is adequate and hopefully will remain pretty alright!
Relatedly, the Wikipedia pages are suspicious AF. Stop referring to Libby as an "award-winning app"! The citation doesn't even talk about any awards!
posted by Baethan at 6:57 PM on August 7, 2023 [5 favorites]
It's just as bad as you think it is.
posted by praemunire at 7:01 PM on August 7, 2023 [1 favorite]
posted by praemunire at 7:01 PM on August 7, 2023 [1 favorite]
Here's an article about KKR's purchase of Libby
https://karawynn.substack.com/p/the-coming-enshittification-of-public-libraries
posted by kokaku at 7:17 PM on August 7, 2023 [18 favorites]
https://karawynn.substack.com/p/the-coming-enshittification-of-public-libraries
posted by kokaku at 7:17 PM on August 7, 2023 [18 favorites]
And the solution is simple - make it so that debt incurred in a leveraged buyout is non-transferable.
Sadly it's never that simple. If you make it non-transferable they'll just set up a holding corp to hold all the debt and the acquired corp.
Ultimately it comes down a bunch of rich people financing what amounts to their version of lottery tickets along with a bank. If it goes down, the bank gets scrap value. If it goes up, they'll print money on the IPO or subsequent sale. The PE directors? They get paid either way because they're fees are fixed not contingent.
The banks don't get keep getting swindled in these deals. The reason the banks will lend them 80% of the purchase price time and time again for these PE assholes to sink the company is because the scrap value of the business is often far greater than the loan amount and any debt payments are gravy. The banks literally have no downside and no reason to stop going along with this corporate raiding fuckery.
If you really want to get at these motherfuckers? Change the bankruptcy laws and put everyone actually screwed at the front of the line, even certain unsecured like payments for stock (which should be secured because the stock is literally physical fucking items). Send the tranches of the banks to the back of the line after everyone the PE guys screwed. Muddy those waters and make the bank afraid of losing money and the whole enterprise becomes radioactive.
posted by Your Childhood Pet Rock at 7:24 PM on August 7, 2023 [45 favorites]
Sadly it's never that simple. If you make it non-transferable they'll just set up a holding corp to hold all the debt and the acquired corp.
Ultimately it comes down a bunch of rich people financing what amounts to their version of lottery tickets along with a bank. If it goes down, the bank gets scrap value. If it goes up, they'll print money on the IPO or subsequent sale. The PE directors? They get paid either way because they're fees are fixed not contingent.
The banks don't get keep getting swindled in these deals. The reason the banks will lend them 80% of the purchase price time and time again for these PE assholes to sink the company is because the scrap value of the business is often far greater than the loan amount and any debt payments are gravy. The banks literally have no downside and no reason to stop going along with this corporate raiding fuckery.
If you really want to get at these motherfuckers? Change the bankruptcy laws and put everyone actually screwed at the front of the line, even certain unsecured like payments for stock (which should be secured because the stock is literally physical fucking items). Send the tranches of the banks to the back of the line after everyone the PE guys screwed. Muddy those waters and make the bank afraid of losing money and the whole enterprise becomes radioactive.
posted by Your Childhood Pet Rock at 7:24 PM on August 7, 2023 [45 favorites]
"The dealings of my trade were but a drop of water in the comprehensive ocean of my business!‘”
-Ghost of Marley.
posted by clavdivs at 7:25 PM on August 7, 2023 [4 favorites]
-Ghost of Marley.
posted by clavdivs at 7:25 PM on August 7, 2023 [4 favorites]
Oh hey, I guess we'll see what happens to the book I have coming out with Simon & Schuster in December.
On the non doom-and-gloom side, private equity has managed to lift Barnes and Noble out of irrelevancy, and KKR did ok with RBMedia, which I believe it is on the verge of selling for over a billion, which is more than twice what it paid for it. So its stewardship isn't always horrible.
posted by jordantwodelta at 8:10 PM on August 7, 2023 [10 favorites]
On the non doom-and-gloom side, private equity has managed to lift Barnes and Noble out of irrelevancy, and KKR did ok with RBMedia, which I believe it is on the verge of selling for over a billion, which is more than twice what it paid for it. So its stewardship isn't always horrible.
posted by jordantwodelta at 8:10 PM on August 7, 2023 [10 favorites]
There were not exactly flourishing under Paramount. The challenge for them as with any subsidiary of a big company was how much of the revenue is stripped away by the parent company (Paramount) and how much was being allowed to be reinvested into growing the business. My guess is that Paramount was sucking them dry.
Now they will have a different owner and different terms. It might be worse or it could be better depending on the terms. Assuming they can make their debt payments and show some growth who knows maybe it’s better.
posted by interogative mood at 8:19 PM on August 7, 2023 [1 favorite]
Now they will have a different owner and different terms. It might be worse or it could be better depending on the terms. Assuming they can make their debt payments and show some growth who knows maybe it’s better.
posted by interogative mood at 8:19 PM on August 7, 2023 [1 favorite]
Overdrive acquired Kanopy along the way so if they do end up on the corporate raider scrap heap, that's a whole lot of digital lending gone and suddenly Hoopla is the only real game in town
posted by jason_steakums at 9:52 PM on August 7, 2023 [7 favorites]
posted by jason_steakums at 9:52 PM on August 7, 2023 [7 favorites]
Private Equity's expertise is in converting assets into profits.
If you have a company producing operating profits off of its assets, like its brand and internal expertise in the market, capable of treating employees well because it is economically stable, this is a company ripe for harvesting. Because operating profits aren't the goal.
When an employee works for a company with a great brand and has a stable income stream and pension because of it, from private equity's perspective they are benefiting from something they have no right to - the brand.
So, the private equity buys the company and fills it full of debt, then harvests the money from the debt as profits. This transfers the value of the brand from the company employees and the income stream to the owners.
Now the company is constantly being told by its creditors to cut costs and keep revenue up. If it fails, the debtor requests money to keep the debt in the right band. Pensions, stable jobs, etc no longer become something the people running the company can afford to give to their employees. The operating executives either (a) figure out a way to make the company grow, (b) cut costs brutally to keep profits up, or (c) get replaced. They aren't rewarded based on the past "brand" and successful positioning of the company - they are rewarded based on future performance of a relatively crippled company.
The same goes for any remaining workers.
The goal is to minimize uncaptured externalities - economic benefits that the company produces that aren't shareholder benefits, like good jobs and goods of known quality for consumers - of the company. And the most captured externality is profits already transferred out of the company.
Capitalism is an optimization game. The observation of Adam Smith is that capitalism played poorly keeps on generating wealth for society as a whole. But the external "leakage" of wealth from capitalism into well being for all is a failure of the owners of the capital. So capitalism done right solves that problem.
posted by NotAYakk at 9:58 PM on August 7, 2023 [41 favorites]
If you have a company producing operating profits off of its assets, like its brand and internal expertise in the market, capable of treating employees well because it is economically stable, this is a company ripe for harvesting. Because operating profits aren't the goal.
When an employee works for a company with a great brand and has a stable income stream and pension because of it, from private equity's perspective they are benefiting from something they have no right to - the brand.
So, the private equity buys the company and fills it full of debt, then harvests the money from the debt as profits. This transfers the value of the brand from the company employees and the income stream to the owners.
Now the company is constantly being told by its creditors to cut costs and keep revenue up. If it fails, the debtor requests money to keep the debt in the right band. Pensions, stable jobs, etc no longer become something the people running the company can afford to give to their employees. The operating executives either (a) figure out a way to make the company grow, (b) cut costs brutally to keep profits up, or (c) get replaced. They aren't rewarded based on the past "brand" and successful positioning of the company - they are rewarded based on future performance of a relatively crippled company.
The same goes for any remaining workers.
The goal is to minimize uncaptured externalities - economic benefits that the company produces that aren't shareholder benefits, like good jobs and goods of known quality for consumers - of the company. And the most captured externality is profits already transferred out of the company.
Capitalism is an optimization game. The observation of Adam Smith is that capitalism played poorly keeps on generating wealth for society as a whole. But the external "leakage" of wealth from capitalism into well being for all is a failure of the owners of the capital. So capitalism done right solves that problem.
posted by NotAYakk at 9:58 PM on August 7, 2023 [41 favorites]
Private equity firms are the worst form of usury.
Read somewhere that rich individuals who invest in them tend to only get mediocre returns.
As you said they see human capital only as "scrap metal"
posted by Narrative_Historian at 10:13 PM on August 7, 2023 [2 favorites]
Read somewhere that rich individuals who invest in them tend to only get mediocre returns.
As you said they see human capital only as "scrap metal"
posted by Narrative_Historian at 10:13 PM on August 7, 2023 [2 favorites]
It feels like the end of writing as a human endeavor almost with LLMs now being used to impersonate real authors, as was brought up in another thread. My library card somehow does not work with Overdrive or Hoopla suddenly and I asked the library staff, who were unhelpful. Maybe this is somehow related?
posted by metatuesday at 10:20 PM on August 7, 2023
posted by metatuesday at 10:20 PM on August 7, 2023
Normally I'd be shocked but it's book publishing, it's already such devalued labor that I'm morbidly curious to see how they can make it cheaper.
posted by kingdead at 3:21 AM on August 8, 2023 [3 favorites]
posted by kingdead at 3:21 AM on August 8, 2023 [3 favorites]
My library card somehow does not work with Overdrive or Hoopla suddenly and I asked the library staff, who were unhelpful. Maybe this is somehow related?
Almost certainly not related! Most likely it is something to do with your account on the library's side (a block, an incorrect pin/password, someone changed your account to an ineligible account type, any number of other things), or with how your library's systems communicate with those services to authenticate you as a patron, since it's two separate services.
posted by jason_steakums at 4:42 AM on August 8, 2023
Almost certainly not related! Most likely it is something to do with your account on the library's side (a block, an incorrect pin/password, someone changed your account to an ineligible account type, any number of other things), or with how your library's systems communicate with those services to authenticate you as a patron, since it's two separate services.
posted by jason_steakums at 4:42 AM on August 8, 2023
Rootling around for signs of hope, I found this tidbit from wikipedia on the subject of S&S's CEO.
"In 2022, Simon & Schuster sold 900 autographed copies of Bob Dylan’s book of essays, “The Philosophy of Modern Song.” Accompanying each $600 book was a letter of authenticity signed by Karp, the publisher’s chief executive, indicating that the books had been hand signed by Dylan. According to a New York Times article, when the books arrived, readers immediately noticed that the autographs appeared to have been machine generated by an auto pen. While Simon & Schuster initially denounced the “online rumors,” intense pressure led the publishing house to send out an “acknowledgment” that the autograph had been rendered “in a penned replica form.” Buyers were then provided a refund. Karp and Simon & Schuster declined further comment. Dylan later said "his decision to digitally sign" the books was an "error in judgment", according to the Los Angeles Times.
Missed that story at the time. Make of it what you will.
posted by BWA at 5:23 AM on August 8, 2023 [9 favorites]
"In 2022, Simon & Schuster sold 900 autographed copies of Bob Dylan’s book of essays, “The Philosophy of Modern Song.” Accompanying each $600 book was a letter of authenticity signed by Karp, the publisher’s chief executive, indicating that the books had been hand signed by Dylan. According to a New York Times article, when the books arrived, readers immediately noticed that the autographs appeared to have been machine generated by an auto pen. While Simon & Schuster initially denounced the “online rumors,” intense pressure led the publishing house to send out an “acknowledgment” that the autograph had been rendered “in a penned replica form.” Buyers were then provided a refund. Karp and Simon & Schuster declined further comment. Dylan later said "his decision to digitally sign" the books was an "error in judgment", according to the Los Angeles Times.
Missed that story at the time. Make of it what you will.
posted by BWA at 5:23 AM on August 8, 2023 [9 favorites]
Well, it's certainly not a sign of hope, that's for sure.
posted by mediareport at 5:51 AM on August 8, 2023 [1 favorite]
posted by mediareport at 5:51 AM on August 8, 2023 [1 favorite]
OverDrive is part of the enshitification movement: https://karawynn.substack.com/p/the-coming-enshittification-of-public-libraries
posted by ryoshu at 6:50 AM on August 8, 2023 [4 favorites]
posted by ryoshu at 6:50 AM on August 8, 2023 [4 favorites]
Is this the same KKR who are currently running Gibson Guitars into the ground?
It's difficult to tell because a lot of KKR business news stories are on places like Bloomburg and the Financial Times sites, which are paywalled to the n'th degree :C
posted by Faintdreams at 7:00 AM on August 8, 2023 [2 favorites]
It's difficult to tell because a lot of KKR business news stories are on places like Bloomburg and the Financial Times sites, which are paywalled to the n'th degree :C
posted by Faintdreams at 7:00 AM on August 8, 2023 [2 favorites]
I worked for a public company that was acquired by private equity. They looked at our cash flow and saw how much debt we could service at what rate and bought the whole company up for that amount. The investors and shareholders got paid about 30% more than the shares were trading for before the deal. Of course the reason the stock wasn’t trading as high as the company was worth is that there were some serious headwinds. The PE management gave the company about 2 years to fix those problems running a bit in the red and making investments in new product and capabilities; but ultimately they pulled the plug when it was clear the only way to pay off the debt would he to cut spending to the bone and use maximize the profit off of the long term contracts / maintenance charges. Eventually they got the debt refinanced, the company had a little rebound and they sold it off to a competitor.
I have complicated feelings. On the one hand private equity ended up costing me my and my friend jobs and took away my baby — the software I’d been a key developer on for 10 years. On the other hand I had a really unhealthy relationship with that job and I’ve since gone on to other things. Also I was high enough up on the company to know that we were heading into some difficult times regardless. If our CEO hadn’t done that deal, there would have been a much less favorable deal in 2 years anyway when all the issues came to a head.
posted by interogative mood at 8:21 AM on August 8, 2023 [6 favorites]
I have complicated feelings. On the one hand private equity ended up costing me my and my friend jobs and took away my baby — the software I’d been a key developer on for 10 years. On the other hand I had a really unhealthy relationship with that job and I’ve since gone on to other things. Also I was high enough up on the company to know that we were heading into some difficult times regardless. If our CEO hadn’t done that deal, there would have been a much less favorable deal in 2 years anyway when all the issues came to a head.
posted by interogative mood at 8:21 AM on August 8, 2023 [6 favorites]
This is all certainly a ruse to get rights to Star Trek: The Kobayashi Alternative, the adventureless text adventure (did you know they attempted to buy Infocom?)
posted by credulous at 8:34 AM on August 8, 2023 [3 favorites]
posted by credulous at 8:34 AM on August 8, 2023 [3 favorites]
Now they will have a different owner and different terms. It might be worse or it could be better depending on the terms.
This isn't like another big company purchasing S&S. Private equity works on a substantially different model.
posted by praemunire at 8:39 AM on August 8, 2023 [4 favorites]
This isn't like another big company purchasing S&S. Private equity works on a substantially different model.
posted by praemunire at 8:39 AM on August 8, 2023 [4 favorites]
Makes me sick companies who had nothing to do with making anything-- and to be clear, that is in all cases, companies can never make anything -- can own the rights to things. I don't even believe the individual should be able to own intellectual property of any kind, all ideas belong to all humanity, but we live under capitalism and... well, IP law rarely helps the actual creators of things, they often never own the rights to what they've made, that's how fucked up things are. We direly need reform on these antiquated and anti-human laws and practices and all their related fallouts.
posted by GoblinHoney at 8:58 AM on August 8, 2023 [1 favorite]
posted by GoblinHoney at 8:58 AM on August 8, 2023 [1 favorite]
I don't even believe the individual should be able to own intellectual property of any kind, all ideas belong to all humanity,
Creative works are not ideas. Stop devaluing creative labor.
posted by NoxAeternum at 9:44 AM on August 8, 2023 [19 favorites]
Creative works are not ideas. Stop devaluing creative labor.
posted by NoxAeternum at 9:44 AM on August 8, 2023 [19 favorites]
IP law rarely helps the actual creators of things, they often never own the rights to what they've made, that's how fucked up things are
That is Absolutely Not True. Yes, people who work for big corporations don't own the IP to the stuff they develop, but hundreds of thousands if not millions of artists, musicians, writers etc. do own the rights to what they've made and derive an income from it. It never ceases to grind my gears that people thing copyright and IP are only the purview of Evil Capitalist Behemoths.
posted by grumpybear69 at 9:58 AM on August 8, 2023 [12 favorites]
That is Absolutely Not True. Yes, people who work for big corporations don't own the IP to the stuff they develop, but hundreds of thousands if not millions of artists, musicians, writers etc. do own the rights to what they've made and derive an income from it. It never ceases to grind my gears that people thing copyright and IP are only the purview of Evil Capitalist Behemoths.
posted by grumpybear69 at 9:58 AM on August 8, 2023 [12 favorites]
It never ceases to grind my gears that people thing copyright and IP are only the purview of Evil Capitalist Behemoths.
Even worse - one of the reasons they think it is because an Evil Capitalist Behemoth that wants to weaken copyright to allow them to exploit creators (*cough*Alphabet*cough) has pushed this to further their own agenda.
posted by NoxAeternum at 10:05 AM on August 8, 2023 [3 favorites]
Even worse - one of the reasons they think it is because an Evil Capitalist Behemoth that wants to weaken copyright to allow them to exploit creators (*cough*Alphabet*cough) has pushed this to further their own agenda.
posted by NoxAeternum at 10:05 AM on August 8, 2023 [3 favorites]
If you want to understand how PE scams work, there's probably no better book than Eccentric Orbits: The Iridium Story. There's a twist on the usual since Motorola didn't do an LBO of an existing company involving a bunch of bankers, but instead started one fresh, but the bones of the scheme were the same.
Plus, it's an interesting story independent of the financial engineering that allowed Motorola to juice their books, make a bunch of cash, and still end up with a huge book loss that they could use for tax avoidance. The sheer audacity involved in both making satellite phones a thing and also scamming a whole bunch of people out of a whole lot of money was impressive enough. Then they turned it up to 11 and damn near brought the whole constellation down in a rain of fire so they could do it again at some future date.
posted by wierdo at 11:59 AM on August 8, 2023 [1 favorite]
Plus, it's an interesting story independent of the financial engineering that allowed Motorola to juice their books, make a bunch of cash, and still end up with a huge book loss that they could use for tax avoidance. The sheer audacity involved in both making satellite phones a thing and also scamming a whole bunch of people out of a whole lot of money was impressive enough. Then they turned it up to 11 and damn near brought the whole constellation down in a rain of fire so they could do it again at some future date.
posted by wierdo at 11:59 AM on August 8, 2023 [1 favorite]
Publisher's weekly has a pretty good write up.
https://www.publishersweekly.com/pw/by-topic/industry-news/industry-deals/article/92928-kkr-wins-s-s-for-1-62-billion.html
posted by BWA at 5:22 AM on August 9, 2023 [2 favorites]
https://www.publishersweekly.com/pw/by-topic/industry-news/industry-deals/article/92928-kkr-wins-s-s-for-1-62-billion.html
posted by BWA at 5:22 AM on August 9, 2023 [2 favorites]
Thanks for all this chat. I have 19 titles at S&S. It has been rough for decades, and it’s really like “death by a thousand cuts.”
posted by susiebright at 7:46 AM on August 9, 2023 [6 favorites]
posted by susiebright at 7:46 AM on August 9, 2023 [6 favorites]
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