22.1.1 Takeovers in the newspaper industry

“Currently, the PCM Group is being cleaned out by the British shareholder, Apax, which rapidly converted equity into debts and is now taking off with the spoils.”1 This statement by Van Dam, a member of the Dutch Lower House, illustrates the tumultuous public debate in 2006 that followed the brief participation of private equity investor Apax in PCM Uitgevers, the Dutch newspaper and magazine publisher. When investor Apax in PCM Uitgevers, acquired a majority interest in PCM in 2004, the publisher’s equity was 268 million euros; when Apax exited just two years later, PCM’s equity was negative, with the publishers’ balance sheet burdened by debts totalling more than 600 million euros.2PCM’s takeover has been discussed in numerous newspaper articles, and has been the subject of several documentaries; the sequence of events has been reconstructed in two books.3 The media commentary primarily criticized PCM’s shareholders and directors for allegedly thriving at the expense of the company’s interest. This opinion also came through in the Enterprise Chamber’s decision, which issued a ruling at the request of two trade unions which alleged that mismanagement had been involved.4 However, opinions on the PCM case vary amongst legal experts. Although some experts argue that the conduct of private equity investors qualifies as “legalized robbery”,5 others believe that the funding of PCM’s takeover should be qualified as conservative, and that any criticism is especially inspired by a lack of understanding of the financial structure applied.6

In the United States, the acquisition of a newspaper group also gave rise to legal proceedings and a heated public debate regarding the conduct of the investors involved. In December 2007, the Tribune Company, publisher of, inter alia, the Chicago Tribune and the L.A. Times, was taken over by the investment company of real estate tycoon Zell.7 In the scope of the takeover, Tribune incurred new debts totalling nine billion dollars. Soon after the transaction, Tribune ran into financial problems, leading to massive layoffs at the company. Within one year after the takeover, Tribune was forced to apply for Chapter 11 bankruptcy protection under the U.S. Bankruptcy Code. An independent examiner appointed by the judge hearing the case concluded that as a result of the takeover, the shareholders of Tribune had withdrawn a substantial amount of money from the company, and that it was highly likely that Tribune had been left without adequate capital after the transaction.8 For that reason, in 2010, the unsecured creditors in the Tribune bankruptcy initiated legal action against both the shareholders and the banks involved in the takeover, because they felt that the transaction had exposed the company and its creditors to unreasonable risks.9