Tag Archives: Commentary
by Liz Hester
When a friend texted a picture of an alert from our local television station that said “Video: Coverage of Sunshine,” I laughed out loud. Then I went to see what the story was really about since I was fairly sure that the sun rising didn’t count for news (at least not yet). It’s Sunshine Week.
The first thing I found was the site for the week-long spotlight tagged “Open government is good government,” which is sponsored by John S. and James L. Knight Foundation, Bloomberg LP, American Society of New Editors, and Reporters Committee for Freedom of the Press.
There’s a brief history of the initiative’s purpose:
Sunshine Week is a national initiative to promote a dialogue about the importance of open government and freedom of information. Participants include news media, civic groups, libraries, nonprofits, schools and others interested in the public’s right to know.
In 2002, the Florida Society of Newspaper Editors started Sunshine Sunday after some of the state’s government officials tried to create exemptions to Florida’s public record laws. The idea spread after their efforts prevented nearly 300 exemptions to open government laws from going onto the books.
Though created by journalists, Sunshine Week is about the public’s right to know what its government is doing, and why.
Sunshine Week seeks to enlighten and empower people to play an active role in their government at all levels, and to give them access to information that makes their lives better and their communities stronger.
Participants include news media, government officials at all levels, schools and universities, libraries and archives, individuals, non-profit and civic organizations, historians and anyone with an interest in open government.
Everyone can be a part of Sunshine Week. Our coalition of supporters is broad and deep. And individual participation can make all the difference.
The only requirement is that you do something to engage in a discussion about the importance of open government. It could be a large public forum or a classroom discussion, an article or series of articles about access to important information, or an editorial.
There’s a tool kit for people interested in participating in the conversation, an impressive list of events across the country, and an idea bank of records to ask for or highlighting the use of the Freedom of Information Act (FOIA).
But my favorite part was reading through the stories created by asking for open records. Here are a few from the site.
Using Kentucky’s Open Records Act, the Lexington Herald-Leader discovered that the chief executive of two state agencies that lend money to college students had spent more than $50,000 on out-of-state trips, often exceeding the daily per diem limits and treating guests to $100-plus a person meals. Story
St. Louis Post Dispatch reporters filed public records requests to find out more about the environmental cleanup of a long-abandoned coke plant designed to make way for a new business park. The request generated 11,000 pages of records, which the reporters reviewed on site, rather than getting copies and likely prompting an environmental cleanup in the newsroom. The records search showed the $6.7 million project estimate was much too low, which officials knew at the time; that there was no public bidding; and that the original polluters paid only a fraction of the cleanup cost. Story
Using data gathered from a FOIA request, the Asbury Park Press reported that the federal government paid its civilian work force $105 billion in salaries in 2011 — then gave them another $439 million in bonuses. The database has been posted online. Story
It’s inspirational. My grad school fervor about the power of the media was rekindled. We often overlook the great stories in regional papers that bring about so much public good. It made me miss that heady feeling of being in the newsroom when you find something in a filing or just keep pushing until you break a story.
I thought about the late, great Mark Pittman, who had the nerve to sue the Federal Reserve and was such an inspiration to so many of us:
Pittman’s push to open the Fed to more scrutiny resulted in an Aug. 24 victory in Manhattan Federal Court affirming the public’s right to know about the central bank’s more than $2 trillion in assistance to financial firms. He drew the attention of filmmakers Leslie and Andrew Cockburn, who featured him prominently in their documentary about subprime mortgages, “American Casino,” which was shown at New York City’s Tribeca Film Festival in May.
“Who sues the Fed? One reporter on the planet,” said Emma Moody, a Wall Street Journal editor who worked with Pittman at Bloomberg News. “The more complex the issue, the more he wanted to dig into it. Years ago, he forced us to learn what a credit- default swap was. He dragged us kicking and screaming.”
Then there was the story on my local TV station, a panel discussion talking about the football scandal at the University of North Carolina-Chapel Hill.
A panel discussion at 1:40 p.m. will include key parties involved in the lawsuit filed by local media against the University of North Carolina. Dick Baddour, former UNC director of athletics, and Jon Sasser, attorney for former UNC football coach Butch Davis, will join journalists and other lawyers to discuss the three-year legal battle over emails, phone records and parking tickets waged by those trying to report on allegations of athletic and academic improprieties.
Davis was fired and Baddour retired from UNC as scandal swirled that football players accepted gifts, trips and cash and were registered for classes that never met. The university, in a series of internal and external investigations, has said that the problems with changed grades and no-show classes were limited to one department and did not benefit student-athletes any more than other students.
It’s good to be reminded of why being a reporter is important and why fighting to protect open records is essential to holding government officials and others accountable. Go out and file a request – it’s an important and sometimes overlooked tool, especially in today’s fast-paced, commentary heavy news world.
by Peter Himler
Last week my former Associated Press client Tori Ekstrand invited me to speak at the School of Journalism & Mass Communication at the University of North Carolina at Chapel Hill. After a two–hour snow delay in New York, I finally found my way to the Freedom Forum Center on campus where Tori, now an assistant professor, and a handful of her undergraduate students gathered to hear my point-of-view on the evolution of the communications industries.
In a nutshell, I explained, we’ve entered an age when every company and every individual is a media outlet with the capacity to create and syndicate content. At the same time, nimble media upstarts with names like Buzzfeed, Politico, Huffington Post, TechCrunch, TMZ, Drudge, and a myriad others have mastered the art of headline histrionics. In so doing, they have siphoned off a growing share of the public’s ever-divided attention spans from legacy media, which today are struggling to retain the influence they once enjoyed.
I was surprised to learn from Tori that some 60 percent of the students in UNC’s journalism program are not majoring in journalism at all. Instead, they’re pursuing careers in advertising and public relations, which may be a smart move given the economic challenges the media industry continues to face, i.e., Maureen Dowd’s column in The New York Times, and the industry’s embrace of new hybrid ad/edit revenue-generating schemes such as “native advertising” and sponsored content.
Separately, I had forgotten that Talking Biz News’ founder Chris Roush was a senior associate dean and the Walter E. Hussman Sr. Distinguished Scholar in Business Journalism at the university. Talking Biz News is a must-read for those working as or with business journalists. Chris invited me to pen a post for the site on “what’s wrong with the relationship between PR people and business journalists.”
Clearly there’s much wrong in this symbiotic relationship, but it doesn’t end with the business/financial news beat. The historical love-hate relationship between journalists and PR professionals has taken a distinct turn toward the latter in recent years and cuts across virtually every media beat.
There are a number of reasons feeding the growing acrimony between the two professions, or at least the short fuses journalists have today for PR operatives:
1. The ratio of PR people to “pitchable” journalists is now estimated at 4 to 1, resulting in email inbox overload.
2. New data-driven vendors let PR pros automate the media relations process, producing greater volumes of often misguided story pitches.
3. Journalists have many other sources for their story ideas, including those they follow in real-time on Twitter and Facebook.
4. Media relations is pushed to junior staffers at many big agencies — and in-house communications departments — with relatively little supervision or mentoring
With that said, I have to disagree with Chris’s premise that the relationship between PR people and business journalists is completely broken. The New York Times’s Andrew Ross Sorkin, The Wall Street Journal’s Peter Kafka, CNBC’s Maria Bartiromo, Bloomberg News, Reuters, the FT and countless others – including local media outlets — frequently turn to PR professionals whom they’ve come to trust for delivering timely and accurate information.
The relative number of these trustworthy PR pros may have dwindled in recent years, but I assure readers of Talking Biz News that time and information-strapped business journalists continue to appreciate and value the responsive PR pro who “gets it.”
The discipline of “earned media,” as it has become know, is alive and well and still drives the fortunes of the vast majority of PR organizations. Call it what you want – media relations, publicity, media engagement, story pitching – the task of capturing the affections of beleaguered journalists thrives. As an art, however, media relations has seen better days. Here are some likely pleas from both sides of the media relations equation.
Journalists to the PR professional:
• Do not send a story pitch without first researching what I cover.
• In fact do not send a story pitch to a target list of reporters without knowing what each and every person on that list covers.
• Please refrain from sending me a manifesto. If you cannot articulate the story in a couple of sentences, then don’t bother sending.
• Keep the email subject line newsy, not cutesy.
• Take the time to learn and understand what you are pitching.
• Deliver on the promise, i.e., don’t offer an executive for an interview and then be unable to produce him or her.
PR professionals to journalists:
• In spite of the voluminous number of pitches landing in your inbox, please try to reply – even in the negative — if the pitch is within your coverage area. We just want closure.
• If the pitch is not in your specific coverage area, but still editorial valid, please forward to an appropriate colleague.
• Please know that if you do not respond to our overtures, we will be free to take the story idea elsewhere.
• Please know that we would be happy to serve as your arms and legs when you’re in a bind.
• Just as you have a job to do, so do we. Civility is preferred.
Of course, the savvy communications professional today is no longer solely reliant on (and suppliant to) editorial decision makers to have their stories or POVs shared. The PR profession now has the creative capacity and a range of publicly accessible media platforms to deliver content directly to the public, bypassing the media filter altogether.
Does the profession (and its clients) still covet a business feature in The FT or on the Bloomberg News wire? You bet.
But as public consumption of news and information migrates to mobile and social, the PR pros no longer have to endure the indignity of getting dissed by a stressed out reporter who paints all PR people as evil. Alternative means for engaging end audiences via independently produced content are on the rise.
Peter Himler is a principal at New York-based Flatiron Communications.
A few weeks ago I used this column to complain about how marketing fundamentals were invading the public relations field and eroding media relations basics. New tools for a new era of engagement has had a sweeping impact on the public relations field.
While I firmly believe that this new way of thinking has been largely detrimental to media relations, there has been some interesting new ways to use media relations for a marketing effect.
The idea came to me when I was looking at Twitter and saw that a notable technology editor at a national business publication had blasted out a tweet about a bad PR pitch she had received. Apparently, some PR agency had sent her a pitch about a limited time deal at everyone’s favorite doughnut shop.
At first glance, this made absolutely zero sense. Why would a tech editor care about donuts?
Reporters, especially business reporters who tend to focus on specific, often times esoteric topics like the mechanics of a leveraged buyout, are flooded with poorly targeted emails. In fact, it happens so often most reporters I know are completely unfazed by these wandering bits of mail.
However, after a closer look I am a believer that the wayward doughnut pitch was not in fact poorly targeted, but perhaps a clever new way of utilizing media relations. (Full disclaimer, I was not involved in this pitch, so my theory below is only rooted in an understanding of current practices that may or may not have been applied to this email.)
The impact of the internet and social media on news media has been talked about ad nauseum, so without diving into a broad examination of this changing field there is one important evolution reporters should understand. Journalists are no longer simply the arbiters of information for their specific beat but are now influencers of the general population (especially those that engage on social media). For public relations in the modern era, influencers are fundamental tools to deliver a message.
Consider that this tech editor maintains an active Twitter account with thousands of followers. The information she shares with her community of followers is not confined to technology news, but is filled with updates about her day, opinions about the tech industry and general musings on life.
In this light, one can certainly argue that the doughnut pitch was not a common PR misfire, but perhaps a targeted approach to a highly influential consumer.
What if she had tweeted in the past about her love for this brand? Would a PR person then be off-base to assume she wouldn’t be interested in what’s happening with this brand? Either way, when she took to twitter to alert her followers about the pitch, and the marketing promotion it highlighted, a PR objective was achieved.
Is this the best way to practice media relations? Absolutely not.
I can’t imagine there is a reporter out there who would condone increasing the number of bad pitches they get.
To be clear, I am not condoning sending business reporters consumer PR pitches just because they have an active twitter account. Targeting and thoughtfulness in any approach to media are still the most important considerations, but in a new media era carefully targeted pitches don’t necessarily have to address a reporter’s beat.
by Chris Roush
Dana Blankenhorn muses on TheStreet.com about the business journalism profession and what it means to the public.
Blankenhorn writes, “As a journalist, I make calls on companies all the time. As a fan of journalism, I get a kick out of recent posts by the TheStreet’s Rocco Pendola: His demanding the firings of business titans including Reed Hastings of Netflix, Rob Johnson of J.C. Penney and Apple CEO Tim Cook.
“Rocco and I are like sportswriters at a baseball game. We can spot a promising rookie, a veteran on the decline and can spin stories that entertain. But you wouldn’t hire a sportswriter to manage a ball club, and you shouldn’t trust a journalist with your money.
“Trust is the problem. There are millions of people who should be in the market, who are about to take huge losses as bond prices drop and interest rates rise. But they’re not in the market because they don’t trust anyone. Nor is there much reason for them to trust anyone.
“Here at TheStreet, there are people who entertain and people we trust, people we cover who deserve your trust. I entertain. Doug Kass, by contrast, deserves your trust. Warren Buffett and Berkshire-Hathaway deserve your trust. Jack Bogle and Vanguard, as I wrote at my personal blog, deserve your trust.”
Read more here.
by Chris Roush
Debbie Baratz of ValueWalk.com writes that business news network CNBC needs to stop telling its on-air guests that they can’t talk to anyone else.
Baratz writes, “A reporter’s source is either likely to speak to a few different media outlets and at times, the same quotes are repeated thanks to digital media (see above quotes).
“For media consumers, they can now look to numerous sources for their news, which is a good thing. Sure some outlets have better quality that others and for CNBC, it is at the top of the heap. It’s not the only one on the mountain but to act like a gatekeeper in today’s fast media with its numerous options is unfair and unwise.
“You have to think that at the end of the day, actions will speak louder than words. Consumers will go to sources they trust, just as corporate executives and experts will speak to the outlets they want, portraying their story and opinions through their message.
“ESPN has seen the rise of other sports outlets and now attributes breaking stories to its competitors, it’s time for CNBC to adapt as well.”
Read more here.
by Liz Hester
When Yahoo’s new CEO Marissa Mayer banned working from home at the company, everyone from working moms to Richard Branson piled on saying the decision was a terrible one. The resulting debate and coverage from news organizations around the country makes for interesting reading.
It seems that nearly everyone has an opinion on the matter, so let’s look at a few.
First, there was the New York Times columnist Maureen Dowd, who writes that while Mayer had to make a tough decision, her money and ability to build a nursery next to her office made life easier for her.
It flies in the face of tech companies’ success in creating a cloud office rather than a conventional one. Mayer’s friend Sheryl Sandberg of Facebook wrote in her new feminist manifesto, “Lean In: Women, Work, and the Will to Lead,” that technology could revolutionize women’s lives by “changing the emphasis on strict office hours since so much work can be conducted online.”
She added that “the traditional practice of judging employees by face time rather than results unfortunately persists” when it would be more efficient to focus on results.
Many women were appalled at the Yahoo news, noting that Mayer, with her penthouse atop the San Francisco Four Seasons, her Oscar de la Rentas and her $117 million five-year contract, seems oblivious to the fact that for many of her less-privileged sisters with young children, telecommuting is a lifeline to a manageable life.
The dictatorial decree to work “side by side” had some dubbing Mayer not “the Steinem of Silicon Valley” but “the Stalin of Silicon Valley.”
Mayer and Sandberg are in an elite cocoon and in USA Today, Joanne Bamberger fretted that they are “setting back the cause of working mothers.” She wrote that Sandberg’s exhortation for “women to pull themselves up by the Louboutin straps” is damaging, as is “Mayer’s office-only work proclamation that sends us back to the pre-Internet era of power suits with floppy bow ties.”
Counter to that point was a CBS commentator:
CBS News contributor and analyst Mellody Hobson said Yahoo CEO Marissa Mayer has “a real turnaround on her hands,” and said the new edict is “smart,” not “ruthless.”
“She’s looking at the situation saying ‘I need innovation to change this company.’ And ones of the things that drives innovation is collaboration. People working next to each other, shoulder to shoulder, coming up with ideas,” Hobson explained Tuesday on “CBS This Morning.”
“She’s saying you can’t build a culture via email,” Hobson said of Mayer’s effort to bolster the Yahoo community. “She needs these people in the office.”
Hobson went on to address common misconceptions about telecommuters, saying “The average person who telecommutes is a 40-year-old male. We think of it as a stay-at-home mom,” she said, but added that that is only one type of telecommuter.
A Boston Globe piece by Deborah Kotz invoked a new study showing that working from home increased productivity, but may ultimately hamper your ability to be promoted.
The Stanford University study of 249 call center workers at a Chinese travel agency found that those who were randomly selected to work from home four days a week for nine months — after they volunteered to do so — experienced a 13 percent increase in their work performance.
The improvement came mainly from a 9 percent increase in the number of minutes worked during their shifts due to a reduction in breaks and sick-days taken. The remaining 4 percent came from an increase in the number of calls home workers took per minute worked, compared with those in the control group who weren’t selected to work at home.
Home workers also had more job satisfaction and were also less likely to quit their positions during the study. And the company saved about $2,000 per year for each employee who worked at home. (Reduced costs is one of the reasons federal agencies such as the National Institutes of Health have strongly encouraged employees to work at home at least one day each week.)
Despite all of these work gains, however, the study also found an important downside to working at home: It reduced rates of promotion by 50 percent when measured against job performance. While those who worked at home had about the same number of promotions as those who worked on site, they should have had more considering how much extra work they performed.
No matter how you feel about the situation, Businessweek points out that Mayer’s decision is getting more attention because she’s the female head of a technology company, many of which are known for flexible work policies.
The tiny sisterhood of women CEOs who have made it to the top of technology companies (and non-tech companies for that matter) can attest to the difficulty of running a huge corporation when even the most banal strategic move is picked apart so obsessively. Carol Bartz, the former head of Yahoo and Autodesk (ADSK), enjoyed similar treatment while she was CEO of Yahoo, most notably inviting ridicule for her un-ladylike habit of dropping the f-bomb. Carly Fiorina, the chief executive of Hewlett-Packard (HPQ) from 1999 to 2005, confronted constant peanut-gallery analysis of her hair and her mannerisms by a business press that both glorified her and tore her down. Like Mayer, these women were trying to turn around complicated companies badly in need of new ideas.
No one knows whether the decision to require all Yahoo employees to work in an office will prove to be positive or negative for the company; it may be personally disastrous for some of the individuals affected and the best thing that ever happened to others. But if one of the hundreds of men running American companies had made a similar move, it’s unlikely that anyone would have even noticed.
by Liz Hester
I’ve been a fan of Adam Davidson of NPR’s Planet Money for a long time. His work is smart and I always enjoy reading his column in the New York Times magazine. And this week’s column is no exception.
It’s all about how Justice Department economists are using game theory to contest Anheuser-Busch InBev’s purchase of the rest of Grupo Modelo. Here are some details:
So I was surprised to learn that the Justice Department is worried that Anheuser-Busch InBev, the conglomerate that owns Bud, is on the cusp of becoming an abusive monopoly. In January, the department sued AB InBev to prevent it from buying the rest of Mexico’s Grupo Modelo, a company in which it already carries a 50 percent stake. The case is not built on any leaked documents about some secret plan to abuse market power and raise prices. Instead, it’s based on the work of Justice Department economists who, using game theory and complex forecasting models, are able to predict what an even bigger AB InBev will do. Their analysis suggests that the firm, regardless of who is running it, will inevitably break the law.
For decades, they argue, Anheuser-Busch has been employing what game theorists call a “trigger strategy,” something like the beer equivalent of the Mutually Assured Destruction Doctrine. Anheuser-Busch signals to its competitors that if they lower their prices, it will start a vicious retail war. In 1988, Miller and Coors lowered prices on their flagship beers, which led Anheuser-Busch to slash the price of Bud and its other brands in key markets.
And, as Davidson writes, this is completely legal.
Since that dust-up in the late ’80s, the huge American beer makers have moved in tandem to keep prices well above what classical economics would predict. (According to the logic of supply and demand, competing beer makers should pursue market share by lowering prices to just above the cost of production, or a few cents per bottle.) Budweiser’s trigger strategy has been thwarted, though, by what game theorists call a “rogue player.” When Bud and Coors raise their prices, Grupo Modelo’s Corona does not. (As an imported beer, Corona is also considered to have a higher value.) And so, according to the Justice Department, AB InBev wants to buy Grupo Modelo not because it thinks the company makes great beer, or because it covets Corona’s 7 percent U.S. market share, but because owning Corona would allow AB InBev to raise prices across all of its brands. And if the company could raise prices by, say, 3 percent, it would earn around $1 billion more in profit every year. Imagine the possibilities. The Justice Department already has.
This column is smart for many reasons, especially because Davidson found a new way to analyze these big mergers that have recently been announced. Companies from airlines to office supply retailers are announcing mergers and will have to be scrutinized by the Justice Department. But Davidson says it better:
These firms are among the many preparing for a global market several times larger than any that has ever existed. This helps explain why we have seen so many mergers in the past few months. The Justice Department recently approved the marriage of Penguin and Random House, and is expected to do the same with American Airlines and US Airways. Office Depot and OfficeMax are planning a merger of their own. These megamergers, however, do not inevitably create destructive monopolies. Carl Shapiro, the former chief economist at the Justice Department, told me that large mergers improve competition. Together, Penguin and Random House may be able to better stave off Amazon; American Airlines and US Airways can contend with Delta. Similarly, Office Depot and OfficeMax, once merged, may finally be large enough to really scare Staples. Fear, Shapiro says, is the key. Markets work best, he says, when “everyone has to watch their back.”
Either way, other reporters should take note of Davidson’s observations. Economists at the Justice Department might make great sources and they could hold the key to many mergers going forward.
Although, Davidson’s final argument is that the Justice Department might not hold sway for long. Some countries could be making moves to block competition.
China’s National People’s Congress approved its first antimonopoly law in 2008, which, many economists fear, could be used to block foreign competitors and to promote local giants. India’s version, which went into effect in 2009, is even less clear. It’s quite possible that the true monopolistic battles of the 21st century will not be among massive corporations but among the self-interested governments. We can only hope that they don’t engage in a trigger strategy of their own.
Either way, it’s an interesting take on the new round of merger news.
by Adam Levy
A recent item on Talking Biz News featured an anonymous former investment banker saying that “markets never move in response to a rating agency change….Never. Ever.” The ex-banker went on to intimate that you could spot a clueless business journalist if he or she ascribes a market move to a rating agency change.
Well, maybe that’s why the banker is an ex-banker – or, hopefully, not on the hiring committee of a financial journalism institution. The banker shouldn’t speak in such stark absolutes.
On one hand, I get the point. Rating agencies react to news; they take time to process information. Markets anticipate events. Yes, true, we know all that. I’m not going to defend rating agencies.
But to say “never” and “ever” overstates things. Markets do react to credit rating changes. And the reporters who cite the credit ratings as a reason for market declines might be correct and doing their jobs.
Let’s look back to August 2011 when Standard & Poor’s cut the credit rating of the United States. Here’s the lead from the Wall Street Journal: “The downgrade of the U.S.’s credit rating sparked a global selloff on Monday, pushing the Dow Jones Industrial Average to its sharpest one-day decline since the financial crisis in 2008.” Not sure I’d tag E.S. Browning, the author of this article, as a clueless reporter. Ever.
Now, a nuanced observer might note that the downgrade itself didn’t spark the stock rout. The downgrade merely underscored concerns about an economic slowdown that the ratings agency was a bit slow to recognize. That’s what Bloomberg said in its article that day: “U.S. stocks sank the most since December 2008, while Treasuries rallied and gold surged to a record, as Standard & Poor’s reduction of the nation’s credit rating fueled concern the economic slowdown will worsen.”
The point remains that these reporters needed to cite the downgrade as the spark that led to the rout. Not doing so would have been irresponsible and ignoring the news of the day. When I edited market or company news coverage, I would have laughed (or yelled?) at those who would ignore the news of the day.
When I read the banker’s rant, I couldn’t help but think this is another example of investment banking condescendence. Many like to think they’re the smartest people in the room and ahead of the market. That’s what they sell to clients.
But others follow the ratings agencies and react to their downgrades. And a good reporter is going to pick up on that and write about it.
by Liz Hester
There were two stories in The Wall Street Journal on Tuesday about the state of the private equity industry. The problem is that the two stories seemed to contradict each other.
First, there was the piece in Ahead of the Tape:
What seems likely, though, is that there will be plenty more deals if current, unique conditions persist. A buyout binge may fall short of that seen in 2007 but not by much.
The difference, or spread, between yields on Treasury debt and rates for high-yield bonds isn’t as small as in 2007. But the absolute interest rate of high-yield debt is near a record low.
That is because the yield on Treasurys is so much lower today, largely thanks to a superaggressive Federal Reserve. And, notwithstanding a recent retreat that saw large outflows from some popular high-yield exchange-traded funds, individual investors remain desperate for income.
One might think the other side of the equation, investor cash in private-equity funds, is lacking. It isn’t. From 2005 to 2007 alone, some $1.6 trillion was raised by the industry, according to Dealogic. Much of it never got spent. Now fund managers facing a “use it or lose it” situation have an incentive to get deals done.
The confluence of low interest rates, private-equity investors with money burning a hole in their pockets and what remains a decent economic outlook should keep the deals flowing.
But, as past buyout booms have progressed, the deals have gotten sillier: a lower equity contribution, higher valuations and less margin for error.
This one has yet to get started. If the pattern holds, however, the time will come when stock investors should be only too happy to sell. And some of those piling into high-yield debt, or even relatively sophisticated investors with money in private-equity funds, will again make investments they live to regret.
But then, there was the Current Account column, which said just about the opposite. Here are a few clips about that opinion on the state of the buyout market.
The credit boom of 2005-2007 supercharged this trend. As banks and investors fell over themselves to provide financing for takeovers such as the $45 billion purchase of the Texas power producer TXU Corp., deals got bigger and more daring.
That emboldened private-equity executives to raise ever-bigger funds and lured newcomers into the sector. From 2006 to 2008, private-equity funds raised more than $1.8 trillion, nearly three times as much as in the previous three years, according to Preqin.
The financial crisis ended that streak. And the ensuing economic downturn shellacked many of the debt-laden companies acquired in boom times, making it difficult for private-equity owners to sell them.
The freezing of M&A and capital markets ushered in an era of private-equity hibernation. Larger players like Blackstone Group LP and KKR & Co. diversified into less cyclical areas like hedge funds and asset management. Most of the others struggled on.
The postcrisis stasis is also affecting the supply of available companies. Many struggling funds still own the companies they bought in the 2005-2007 deal binge and may be tempted to pad their return numbers by unloading them.
As for debt, the junk-bond markets that feed buyouts are open and rallying, but banks and investors have been reluctant to let private equity use as much debt as before the crisis.
Those planning the next big M&A bash should bear in mind that there might be fewer, and more sober, private-equity guests.
So buyouts are back? They’re not back? Private equity titans are going to make bigger and riskier deals? Or there are going to be fewer, more thoughtful ones?
After reading this, I’m more confused than ever about the state of the market.
by Liz Hester
After an insider trading case, SAC Capital is set to shell out cash to investors looking to exit the troubled hedge fund run by Steven Cohen. Here’s the story from the Wall Street Journal.
Clients of SAC Capital Advisors LP moved to pull $1.7 billion from the hedge-fund firm, or roughly a quarter of outside investors’ money, as an insider-trading investigation weighed on confidence in the money manager.
SAC will pay out about $660 million next month to investors who had requested withdrawals ahead of Thursday’s deadline, people familiar with the matter said, adding that the firm will return the remaining money over the course of 2013. SAC manages roughly $6 billion in outside capital, according to people familiar with its operation.
A federal insider-trading investigation has ensnared six former SAC employees, and the firm said in November it might face civil charges from securities regulators. SAC has said that both the firm and its founder, Steven A. Cohen, have acted appropriately and that it will cooperate with the probe.
The scrutiny has tested clients’ loyalty and pressed one of the world’s top-performing hedge-fund firms to adapt. Shortly before redemption requests were due, SAC offered clients more time to decide whether to pull their money.
A representative of one investor said SAC can easily manage returning $660 million next month, with little or no noticeable impact on its operations. Still, the exodus was seen by some clients as remarkable for a single quarter considering SAC’s extraordinary track record. SAC has posted average annual returns of about 30%, according to investors.
“Redemptions breed redemptions, and what they have to be careful of is the momentum shifting so people start putting in redemptions regardless of whether they think [regulatory scrutiny] is going to go further or not,” said Brad Balter, an investment manager who oversees more than $1 billion in client money in hedge funds and hasn’t placed any of it with SAC.
Money from outside investors accounts for less than half of the Stamford, Conn.-based firm’s total assets. Mr. Cohen and his employees have around $9 billion of their own money in SAC funds, according to the people close to the firm.
The legal troubles for the fund are far from over. The New York Times reported last week that the government is considering filing charges against another high-ranking employee.
Federal prosecutors are nearing a decision whether to bring criminal charges against Michael Steinberg, a longtime portfolio manager at SAC Capital Advisors, the giant hedge fund owned by the billionaire investor Steven A. Cohen.
In recent months, a former SAC analyst who worked directly for Mr. Steinberg has met with authorities and provided them with information about his former boss, according to a person with direct knowledge of the investigation. The analyst, Jon Horvath, has been cooperating with the government since pleading guilty in September to insider trading charges.
Mr. Horvarth admitted to being part of an insider trading ring that illegally traded the technology stocks Dell and Nvidia. As part of his guilty plea, he implicated Mr. Steinberg, saying that he gave the secret data to his SAC boss and that they traded based on secret financial data about those two companies.
If prosecutors file a criminal case against him, Mr. Steinberg, 40, would be the most senior SAC employee charged in the government’s investigation of the hedge fund, which is based in Stamford, Conn. Including Mr. Steinberg, at least eight current or former SAC employees have been tied to allegations of insider trading while working there. Four have pleaded guilty to federal charges.
Another interesting turn of events is that large investor Blackstone pushed SAC to alter its redemption terms. Here are the details according to Bloomberg.
Clients account for about 40 percent of SAC’s assets under management and the rest is from Cohen and his employees. SAC this week reached a deal with Blackstone Group LP that gives all clients three more months to decide whether to stay in the fund.
The hedge fund was told by the U.S. Securities and Exchange Commission in November that the agency is considering pursuing civil fraud claims against it, related to alleged insider trading in two drugmakers by former portfolio manager Mathew Martoma. Blackstone, one of the biggest investors in SAC, with about $550 million in the fund, will leave most of the money in place for at least another quarter under the new liquidity agreement, it said yesterday in a statement.
The new terms give SAC investors time to see if the fund and its billionaire founder are charged as part of a multiyear government probe that has already linked at least eight current or former employees to allegations of insider trading at the firm.
Clients faced a deadline of yesterday to tell SAC, which is based in Stamford, Connecticut, if they wanted to start the process of withdrawing all their money by the end of the year. Under existing rules, they could redeem 25 percent of their assets from the firm each quarter.
Now, SAC is telling investors they can wait until mid-May to make the decision. At that time, they can redeem a third of their money each in the second, third and fourth quarters.
That leaves the fund in a state of flux and uncertainty, making it hard to make investments or show returns. And funds that can’t post outsized returns typically end up returning investors’ cash anyway.