Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Tuesday, August 18, 2009:. This recovery will be delayed because
of the delayed effects of mountains and mountains of debt that are slowly, though
dramatically, emerging, being systematically destroyed and hurting the institutions
that loaned the money.
The biggest impact
of deadbeat debt to come is in commercial real estate. Declining rent rolls
are forcing buildings into default and dragging their heavy debt with them.
But excessive debt is everywhere -- especially in private equity. This story
from today's Wall Street Journal highlights private equity debt. It's
massive. I'm fascinated by this stuff because I used to run a publishing company.
Except for one small mortgage which we paid off in nine months, we never had
any debt. Never.
11 Is Next Page for Reader's Digest
By SHIRA OVIDE and MIKE SPECTOR
of Reader's Digest magazine said Monday it will file for bankruptcy protection,
becoming the latest in a series of debt-laden media companies felled by the
recession and changing consumer tastes. The capitulation by Reader's Digest
Association Inc. is another black eye for private-equity firms, which bet
big during the boom years this decade that they could turn around media concerns
and create outsize profits. The move also is a low point in the storied history
of Reader's Digest, a onetime staple of coffee tables and doctors' offices
that at its peak three decades ago sold 18 million copies a month. Circulation
now is less than half that.
Under the plan,
Reader's Digest Association will cut its debt to about $550 million from $2.2
billion. An investment group led by private-equity firm Ripplewood Holdings,
which bought Reader's Digest in 2007 for $1.6 billion, will see its
investment wiped out, and the publisher's lenders, led by J.P. Morgan
Chase & Co., will take control of the company.
In headier days,
media-company revenue was predictable, allowing investment firms to pile on
debt and repay it with steady -- albeit slow-growing or slightly ebbing --
profits. Instead, revenue is dropping more quickly than almost anyone imagined,
pushing owners of newspapers, magazines and broadcasters to seek protection
TV company Tribune Co. tipped into bankruptcy in December, a year after real-estate
mogul Samuel Zell led its $8.2 billion buyout. The private-equity firms that
headed last year's buyout of Clear Channel Communications Inc. are now trying
to rework the radio chain's $20 billion in debt.
was founded in 1922 as a roundup of condensed articles from other publications.
The pocket-sized monthly became a money-making giant, with dozens of versions
published overseas. The Pleasantville, N.Y., company, which expanded into
condensed books and other publications, generated enormous wealth for its
founders, the Wallace family, who became prolific philanthropists.
slipped as more readers migrated to magazines that cater to special interests
such as sports or entertainment. Reader's Digest reacted by making editorial
changes, embracing articles aimed at women and celebrity news.
to modernize the magazine and to make it like every other magazine in the
country," said Samir Husni, director of the magazine innovation center
at the University of Mississippi. "They lost their DNA." ...
In 2006, Ripplewood
agreed to buy Reader's Digest. The New York company believed it could boost
revenue by expanding the publisher's Web operations and publications. Reader's
Digest owns nearly 100 other titles and media properties, including the magazine
Every Day with Rachael Ray and Web site Allrecipes.com.
it thought the company's revenue could grow by a single-digit percentage each
year. Instead, revenue fell, albeit less steeply than at many other print-media
firms, including a nearly 2% currency-adjusted slide for the fiscal year ended
June 30. Reader's Digest also shut or sold underperforming businesses, cutting
the annual revenue base to $2.2 billion from more than $2.7 billion.
declines mean the company's debt stands at 17 times annual earnings before
interest, taxes, depreciation and amortization, compared with an expected
four times under the proposed debt restructuring. ...
bankruptcy, senior lenders will exchange a substantial portion of their $1.6
billion in debt for a 92.5% equity stake. Company management and board members
will own 7.5%.
the company is allowing for the possibility of up to $100 million in new investment,
either from existing bondholders or outside firms. Those investors can receive
up to 20% of the reorganized company, a move that would dilute the senior
lenders and management stakes.
Some of the
lenders will provide a $150 million debtor-in-possession loan to carry Reader's
Digest through reorganization and beyond. ...
amazing power of prediction.
+ The spring of 1930 marks the end of a period of grave concern
business is steadily coming back to a normal level of prosperity.
Julius Barnes, head of Hoovers National Business Survey Conference, March
the crash only took place six months ago, I am convinced we have now passed
through the worst and with continued unity of effort we shall rapidly
recover. There has been no significant bank or industrial failure. That danger,
too, is safely behind us. Herbert Hoover, May 1, 1930
which cable provider did your daughter bargain with? Reader Susan Traiman
takes a guess:
did not mention the name of the cable company. Comcast?
Comcast: if you order your service through Best Buy, you will be able to save
at least 1/3 vs picking up the phone and negotiating with Comcast. ( I am a
great negotiator too!)
Best Buy, even over the phone, as I did it, is able to offer the services for
wayyyy less than Comcast is able to offer. Whatever it is that you want, just
ask for it. They threw in HBO and SHO at no charge. Bumped up the download speed
from 6 to 10 ( 16 when need the power boost) at no charge. Even got 50% off
for an extra main box.
No one seems to know this little secret.
mistake made in Ireland: Poor Ainsley.
lessons from the selling of health-care:
Sell the need first.
Then sell the solution.
Listen to your customers.
If you customers object, maybe it's time to regroup and think of another approach.
Never ever do massive changes in haste.
Anything done in haste will usually turn out wrong -- viz. Iraq, Afghanistan,
The ship's Captain inspected his sailors. He finds they smell bad.
The Captain suggests to the Chief it would help if the sailors would change
The Chief responded,
"Aye, aye sir, I'll see to it immediately!"
The Chief went
straight to the sailors berth deck and announced, "The Captain thinks you
guys smell bad and wants you to change your underwear. Pittman, you change with
Jones; McCarthy, you change with Witkowski, and Brown, you change with Schultz.
Now get to it!!!"
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
is . You can't
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