Goldman Sachs acquiring media equity
September 23, 2009 7:18 PM Subscribe
... one wonders why [Goldman Sachs] and [JP Morgan] were so eager to provide "rescue" financings to virtually the entire distressed media space: both companies knew too well that sooner or later they would end up with full equity control over essentially the most coveted industry: thousands of TV stations, radio channels, newspaper and magazines. (via) (previously)
Give me a freaking break. Bank debt is at the top of any capital structure, so when a company goes bankrupt, or is on the verge, banks are ALWAYS first to recover in a reorganization. That doesn't mean that they're secretly buying companies. It means that banks have access to the cheapest capital around (since they accept deposits and print it even if they don't have it), so they can offer the best deals on any debt-driven deals.
No bank is in the business of owning/managing non-financial businesses (I can't remember the exact law, but here's a reference in a Times article from a few months ago...):
Current law prohibits mixing banking and commerce, based on a fear that if industrialists own banks, they will dominate — and try to manipulate — the economy, as they did during the early-20th-century heyday of John Pierpont Morgan.
What happens is banks are first to collect, and are therefore more likely to be made whole (get back all their money). Banks in bankruptcy claim that the company is worth nothing (so they can take the equity stake and sell it off for more money), while sub-debt holders and equity holders argue that the company is worth ungodly sums (so they end up with something for their trouble in the reorganized company).
posted by SeizeTheDay at 7:28 PM on September 23, 2009 [2 favorites]
No bank is in the business of owning/managing non-financial businesses (I can't remember the exact law, but here's a reference in a Times article from a few months ago...):
Current law prohibits mixing banking and commerce, based on a fear that if industrialists own banks, they will dominate — and try to manipulate — the economy, as they did during the early-20th-century heyday of John Pierpont Morgan.
What happens is banks are first to collect, and are therefore more likely to be made whole (get back all their money). Banks in bankruptcy claim that the company is worth nothing (so they can take the equity stake and sell it off for more money), while sub-debt holders and equity holders argue that the company is worth ungodly sums (so they end up with something for their trouble in the reorganized company).
posted by SeizeTheDay at 7:28 PM on September 23, 2009 [2 favorites]
essentially the most coveted industry: thousands of TV stations, radio channels, newspaper and magazines
How quaint! Jeez, what century do these people live in?
posted by Sys Rq at 8:00 PM on September 23, 2009 [3 favorites]
How quaint! Jeez, what century do these people live in?
posted by Sys Rq at 8:00 PM on September 23, 2009 [3 favorites]
Oh this isn't such a big deal. The article notes the banks were well aware of the rules beforehand, but there's a perfect storm here. Media companies, newspapers especially, have been consolidating and becoming large holding companies. They have loans from multiple banks and the banks have loans with multiple media companies. No one expected so many media companies to need restructuring. I'm in favor of debt-to-equity conversions as I've noted before, I believe Roubini has been pushing this. Debt is a binary choice, either you're bankrupt or you're not. Equity is more flexible. In any case, there's little indication that the banks were trying to seize control of media companies, there are ways of handling this. The blogger omitted an important part:
Let's be honest though, this isn't 1935. Radio and television stations are nothing more than repeaters for content providers. I'm still creeped out when my local Jack FM station makes local references. Steve Harvey morning show is another one that can make it seem local if you're not paying attention to the cuts. Of course I don't think we'd see the FCC ease back on any of these draconian regulations anytime soon. They give the FCC a lot of power. It will be more interesting when the line between television and the Internet becomes increasingly blurred. I already access Hulu and Comedy Central from my television as if they were cable on-demand channels. Hulu seems to be turning into an aggregate service so that media companies don't have to worry about developing their own distribution system, in turn Hulu seems flexible about how they deal with ads and such. A smart lawyer wanting to make a name for himself could make a good case that they're breaching existing laws.
posted by geoff. at 8:07 PM on September 23, 2009 [4 favorites]
But ION's bankruptcy reorganization plan first puts the new stock in an FCC trust until the agency approves the transfer of control to the lenders. Lenders unable to certify to the FCC that they can comply with ownership rules would receive "special warrants" in lieu of the new stock, which could limit direct control of their investment.This is the first thing that entered my mind. I'm guessing it would be structured so that they do not receive any sort of voting rights or ability to sit on the board of directors and in lieu of this are the first ones in line when it comes to distributions. Sit on it for 5 years and the banks will probably make a hefty profit.
Let's be honest though, this isn't 1935. Radio and television stations are nothing more than repeaters for content providers. I'm still creeped out when my local Jack FM station makes local references. Steve Harvey morning show is another one that can make it seem local if you're not paying attention to the cuts. Of course I don't think we'd see the FCC ease back on any of these draconian regulations anytime soon. They give the FCC a lot of power. It will be more interesting when the line between television and the Internet becomes increasingly blurred. I already access Hulu and Comedy Central from my television as if they were cable on-demand channels. Hulu seems to be turning into an aggregate service so that media companies don't have to worry about developing their own distribution system, in turn Hulu seems flexible about how they deal with ads and such. A smart lawyer wanting to make a name for himself could make a good case that they're breaching existing laws.
posted by geoff. at 8:07 PM on September 23, 2009 [4 favorites]
I'm thrilled to see these wonky debunking comments in the top of the thread, but the post is bizarre alarmism.
posted by grobstein at 8:12 PM on September 23, 2009
posted by grobstein at 8:12 PM on September 23, 2009
I just noticed this comment in the other thread - so I wanted to acknowledge it.
posted by Joe Beese at 8:20 PM on September 23, 2009
posted by Joe Beese at 8:20 PM on September 23, 2009
The last thing The Big Banks want is direct, traceable control over the media. They don't need it, and it will make their PR efforts more difficult, not easier. End of story.
posted by wendell at 8:21 PM on September 23, 2009 [2 favorites]
posted by wendell at 8:21 PM on September 23, 2009 [2 favorites]
essentially the most coveted industry: thousands of TV stations, radio channels, newspaper and magazines
Nothing makes a banker's mouth water like an industry with a no future business model and a rapidly ageing customer base!
posted by atrazine at 9:05 PM on September 23, 2009 [3 favorites]
Nothing makes a banker's mouth water like an industry with a no future business model and a rapidly ageing customer base!
posted by atrazine at 9:05 PM on September 23, 2009 [3 favorites]
Silvio Berlusconi?
posted by mediareport at 9:39 PM on September 23, 2009 [5 favorites]
posted by mediareport at 9:39 PM on September 23, 2009 [5 favorites]
Give me a freaking break. Bank debt is at the top of any capital structure, so when a company goes bankrupt, or is on the verge, banks are ALWAYS first to recover in a reorganization.
So that means when the Us is insolvent - the banks will own the nation.
Damnit. That makes Jefferson right. And Jackson's comments about vipers correct.
posted by rough ashlar at 10:12 PM on September 23, 2009
So that means when the Us is insolvent - the banks will own the nation.
Damnit. That makes Jefferson right. And Jackson's comments about vipers correct.
posted by rough ashlar at 10:12 PM on September 23, 2009
Well, banks are always first unless the federal government steps in and decides who gets which pieces (*cough* Chrysler *cough* General Motors).
posted by tgrundke at 4:24 AM on September 24, 2009
posted by tgrundke at 4:24 AM on September 24, 2009
So that means when the Us is insolvent - the banks will own the nation.
I hope you're kidding. Why would banks hold government debt, when government debt is considered risk-free, and therefore nearly completely unprofitable? If the government is ever declared insolvent, it would never follow the rules of US bankruptcy law; it would debase its currency, making the paper worth less, and leaving debtholders with less recovery. And Japan and China are the two largest US debtholders (foreign debtholders, we still hold a lot here in the US).
posted by SeizeTheDay at 4:33 AM on September 24, 2009
I hope you're kidding. Why would banks hold government debt, when government debt is considered risk-free, and therefore nearly completely unprofitable? If the government is ever declared insolvent, it would never follow the rules of US bankruptcy law; it would debase its currency, making the paper worth less, and leaving debtholders with less recovery. And Japan and China are the two largest US debtholders (foreign debtholders, we still hold a lot here in the US).
posted by SeizeTheDay at 4:33 AM on September 24, 2009
seizetheday says:
"(so they can take the equity stake and sell it off for more money)"
I am sure NO bankers would EVER sell their equity stakes to one of their buddies who already owes them big favors and will do everything they say. EVER.
posted by 3mendo at 4:44 AM on September 27, 2009
"(so they can take the equity stake and sell it off for more money)"
I am sure NO bankers would EVER sell their equity stakes to one of their buddies who already owes them big favors and will do everything they say. EVER.
posted by 3mendo at 4:44 AM on September 27, 2009
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