January 29, 2015

What a CEO earns to “Strip the carcass”

Here’s what Paul Godfrey gets paid “to satisfy the short-term profit-seeking of U.S. financiers who now control many of the leading originators of news in Canada’s largest communities.”  I particularly like the “entertainment expenses.”

From David Olive in the Toronto Star:


Postmedia and the heavy price it pays to survive


Postmedia Network Canada Corp., 35-per-cent owned by the Manhattan-based hedge fund GoldenTree Asset Management, Postmedia’s largest shareholder, was already Canada’s biggest newspaper chain when it announced last October it was buying the Sun Media chain of tabloid dailies and more than 150 other titles from Quebecor Media Inc.

GoldenTree and its fellow hedge-fund investors in Postmedia thrive on acquiring distressed properties on the cheap and milking their remaining assets. GoldenTree took the lead in 2010 in creating the Postmedia agglomeration, which it salvaged from the wreckage of the Asper family’s bankrupt CanWest empire. It put a Canadian face on the largely U.S.-owned Postmedia appointing Paul Godfrey, 75, as its CEO.

One would think that Godfrey’s slash-and-burn tactics at some of Canada’s most important media outlets — the Vancouver Sun, the Calgary Herald, the Ottawa Citizen, the Montreal Gazette, the National Post and many others — in large part to make debt payments to Greentree and Postmedia’s other offshore debt-holders would be of more than slighting public interest. …

But the real story is that a Postmedia, leveraged to the hilt, can still generate just enough cash to further enrich Postmedia’s mostly U.S. absentee owners. And, if meeting the Americans’ demands for payments on the Postmedia debt they hold further impairs Postmedia in its ability to serve Canadian audiences, the Wall Streeters aren’t losing sleep. It’s unlikely that Godfrey’s sleep is overly troubled, either. His pay for running a company that has never turned a profit has jumped 50 per cent, to $1.7 million, plus $180,000 in what Postmedia’s annual reports describe as “entertainment expenses.” …

Postmedia is encumbered with $497.5 million in debt. With total assets of $740.6 million against liabilities of $729.7 million — including its massive, U.S.-held debt — Postmedia’s liquidation value at the end of its latest fiscal year was only $10.9 million. That’s the value of a handful of McDonald’s franchises. …

In truth, there’s little of substance to Godfrey’s strategy beyond cost cutting and asset stripping. …

Media critics have been sanguine about the unprecedented concentration of newspaper ownership at an enlarged Postmedia, even though the Postmedia-Sun deal will leave just four of the leading dailies in English Canada outside of Postmedia.

The media observers say, as Godfrey does, that the “real” threat to a Canadian free press is from Internet search and social-networking giants like Google, Facebook, Twitter and Pinterest, which siphon ad revenue away from traditional media.

But most Internet sites create practically no content, and instead link to journalism created by “traditional” media, which continue to be the principal originators of breaking news and investigative reports. Which means the health of “traditional” media still matters, in a big way. Postmedia’s papers with their depopulated newsrooms run the risk of becoming irrelevant as a bulwark of democracy. Which might not matter all that much except that so many Canadians still rely on them. …

The three leading Postmedia investors — GoldenTree, Silver Point Capital LP of Greenwich, Conn and New York-based FirstMark Capital — have already extracted close to $340 million in interest payments from Postmedia’s leading Canadian newspapers.

Most of the debt they’ve extended to finance Postmedia bears an interest rate of 8 per cent, a very generous return in this era of low interest rates.

Between 2010 and 2019, Postmedia’s outflow of interest payments will appear to total $650 million. …   So the profit for the U.S. tycoons is basically locked in, provided Godfrey can keep making those interest payments. And the key to that is cutting Postmedia’s costs beyond the bone. In the looking-glass world of financial engineering, you can profit handsomely from an asset of steadily declining value. That is, from picking the carcass clean.

Does anyone have a problem with that?

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  1. I certainly do

    And while the predatory financial implications are worry enough, my deepest concern is with the impacts on journalism.

    As newsrooms are hollowed out and reporting staff stretched ever thinner, infotainment is replacing the kinds of news coverage necessary to our democracy – perhaps even required given the status a free press is accorded in our constitution. Well-researched reporting on issues of public importance (as well as of public interest) is giving way to banalities.

    While I understand full well that media companies are businesses first, their status and undeniable influence on society calls out for some measure of responsibility and accountability.

    How that might be accomplished is unclear when, as you point out, ownership control is foreign and with little interest in the substance of the business or its place in Canadian society.

      1. Thanks for the question – one I feel unable to answer with any specificity.

        Perhaps I simply have a Pollyana-like hope that consumers of news media will decry the degree to which journalism, at least as I know it, has been supplanted and that corporate agendas will evolve in response (a ‘private industry’, market driven solution). As I noted in my original comment, what particular changes may be desired and how (or if) they might be accomplished is unclear to me.

        I realize that this amounts to nothing more than a personal lament and not any kind of prescription, or justification, for change. But some engagement better than silence, no?

  2. When I read the bolded text, “Godfrey’s . . . pay for running a company that has never turned a profit has jumped 50 per cent, to $1.7 million, plus $180,000 in what Postmedia’s annual reports describe as ‘entertainment expenses.'”, I couldn’t resist doing a comparison.

    Translink Employees: 6960
    Translink 2013 budget: $1.4 billion
    Translink CEO compensation: $468,000

    Postmedia Employees: 3200
    Postmedia 2014 budget: $674 ($750 million in 2014)
    Postmedia CEO pay: $1.7 million

    I am certainly not attempting to justify the pay for Translink’s CEO. I just want to put it in context. Injustices in the private sector are passed over in silence while lesser ones in the public sector are shouted from the rooftops.

    1. That’s why it is called “private” sector.

      There are more and more attempts to limit compensation of senior execs of publicly listed firms .. weak and mainly ineffective as of today but growing in force and enforability.

      Also, what specifically do you propose should be done here ?

      1. I have to agree with Bill Morrell. In terms of Translink, it seems to me that the problem is less about executive pay than about perception, propaganda and legitimate frustration that has been misdirected.

        I will say, however, that government created both the public and market sectors in order to provide goods. Whether we obtain a good from one sector or the other, we still pay for it. We are paying for executive salaries in the private sector as surely as we are paying for those in the public sector – as surely as we are paying for subsidized transit fares and free parking at Safeway. Selective criticism of the public sector serves an ideological function, promoting privatization regardless of efficiency.

    2. Geof, thanks for this information. It’s not the first time the feet of clay have been shattered under the argument that the private sector could manage TransLink better and more cheaply.

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