Vulture funds – Will Dick Smith meltdown be replicated at MediaWorks?



To date most of the mainstream media focus on the collapse of Dick Smith has been the impact on customers not being able to cash in their vouchers. This small minded approach manages to miss most of the real issues going on.

One of the fascinating insights into the meltdown at Dick Smiths is the venal manner in which vulture funds swoop in and gut and asset and flog it off…

Private equity firms typically represent informed investors such as high net worth individuals, or fund managers looking for higher returns through leveraged investments.

Typically a private equity firm will undertake a portfolio of highly leveraged investments in different sectors achieving a level of diversity but at a high risk the longer they stay in.

The firms have a very clear objective: identify businesses with potential for high returns based on their balance sheet, operating potential or capacity for leverage and for tax benefits but to exit as soon as objectives are achieved.

The objective is not to acquire a business with the objective of investing for the longer term, but purely with a view to exiting at a point where the return for risk relation is maximised.

This means that an exit is planned from day one to the extent return is not compromised. The long term prospects for the business are only of interest to the private equity firm to the extent that it helps dress the business for the market to help with the private equity firm’s exit. In the case of exit by listing this will typically involve changing and packaging the business so it is perceived as a more valuable investment by future investors. The packaging will typically involve all essential market positive aspects of the business, the balance sheet, capital structure and management.

If an acquired business is already listed, often they will de-list the firm, restructure and repackage it and then place in on the market through a stock exchange or sell it as going concern in part or whole in a sale. Often they will acquire divisions or segments of businesses within larger enterprises as was the case for Dick Smith.

…this type of vulture economics is the very kind Jane Kelsey warned of in her book last year.

What’s concerning is the same type of vulture fund currently owns MediaWorks. Oaktree is trying to play the same game by gutting MediaWorks of any costs, hollowing out so that they can chop it up and sell it. The problem has been however that Mark Weldon’s cuts have damaged the brand so badly that Oaktree can’t sell. It may be that Oaktree accept their losses and just dumps the business, either way, MediaWorks is close to being as self mutilated as Dick Smith.

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  1. dick smith collapse is more about a change in retail as disruptive technology starts eating away at the traditional retail and mall environments ,in media works case there is no offering on TV that cant downloaded mouths ahead of time and of inept management there very successful media organization like rt BBC aljezera who transitioned to net successfully

  2. The difference between Media Works and Dick Smith is that one deploys con artist misinformation to the masses and it’s irrelevant whether it makes money or not so long as it does that job, while the other just sold consumer eletronics badly.

    This is interesting IMV.

    The art of the con artist.

    The Guardian .

    ‘ She interviewed many con artists herself.’

    “I was surprised at how ordinary a lot of them seemed,” Konnikova says. “It’s not like you can see them and say, ‘oh this is a pathological liar, this is a psychopath, this is an evil human being.’ A lot of them seem just like the girl or boy next door, perfectly unremarkable.”

    Does barbecue jonky spring to mind ?

  3. Dislike the company, as they have made mega millions, but happy that it’s failing..the workers will understand as the union are in their camp and always with them lol…

  4. Media Works Mark Weldon is a smart (sly ) cookie and would be well aware of the vultures Modus Operandi as the stock exchange operative….can’t help wondering if he deliberately made Media Works damaged goods to prevent the vultures getting the carcass so that he and his influential mates can pick off the profitable bits themselves

  5. Asset stripping is the culture John Key comes from. Where he first earned his chops as a stock broker. His stock broking company sold the shares of privatised government assets in the 1980s (from what I understand). Essentially he is applying the same asset stripping model to New Zealand at a government level now. Councils are next on the agenda. Some sort of announcement on that should come this year.

  6. Mediaworks have got too closely aligned to the Natzis and have damaged the brand, too much political interference from Joyce and Key.

    Getting rid of John Campbell was a bad call as he was one of the few investigative journalists left in NZ, however his demise was purely political.

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