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Why Vice’s bankruptcy is a warning on private equity investment

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Vice, TPG and a private equity reckoning

More than a decade ago, by Shane Smith’s telling, the Vice Media founder and Rupert Murdoch got drunk on tequila in a Williamsburg, Brooklyn, bar. Months later, the billionaire’s 21st Century Fox group invested $70mn in the edgy and buzzed-about news start-up.

News Corp, Time Warner, Bertelsmann, Condé Nast . . . everyone is after us,” he told the FT over duck confit in 2012.

Now, many of the same titans of media and finance who joined the party and poured about $1.5bn into Vice over the years — the Murdochs, Disney’s Bob Iger, Sir Martin Sorrell and others — have been left with nothing but a brutal hangover. 

They’re poised to lose almost everything as Vice prepares for a deal to sell the business to a consortium of lenders including Fortress Investment Group and Soros Fund Management.

But it wasn’t the LSD-coloured dog shows or nights spent tripping on the world’s most powerful psychedelics that factored into the company’s eventual downfall. It was (depending on who you ask) private equity.

Smith, who launched Vice as a counterculture magazine in 1990s Montreal, has never been afraid to move fast and take risks. 

When private equity investors put nearly half a billion dollars into Vice in 2017, the media executive joked with reporters that he “rounds up” Vice’s $5.7bn valuation to $6bn “because it’s easier to say”.

But even for the swashbuckling and envelope-pushing media boss, partying with the Masters of the Universe proved to be draining.

In 2017, a $450mn funding deal led by TPG and its then-partner Sixth Street was lauded as the gateway to an initial public offering or a multibillion-dollar sale.

But the fine print revealed what some might consider a ticking time bomb, as the FT’s Anna Nicolaou and Sujeet Indap explain in this Big Read: preferred stock.

Here’s how it works: by using preferred stock over common shares, TPG and Sixth Street could glean a 12 per cent dividend in the form of additional stock and junior debt rather than just cash.

They also had other rights for priority payment, which contributed to a “complex and restrictive equity structure”, according to bankruptcy filings.

“Private equity does this: they give you a high headline valuation. But the paper they give you is like a noose around your neck that gets tighter the longer you don’t have a liquidity event,” said one longtime shareholder, referring to either an IPO or a sale of the company. “If it goes past two years, forget it. They basically own the company.”

TPG maintains that Vice’s financial woes are of its own making. “Vice’s liquidity situation is a result of operating losses and the company’s inability to pay debt that was separate from TPG’s investment,” it added.

Other investors and people close to Vice have echoed this, noting its freewheeling culture and knack for burning cash.

However the blame should be divided, the saga is yet another reminder that the cheap money era is long over.

Lossmaking start-ups are in for a rude awakening as interest rates continue to rise and private equity firms tighten the noose around companies that miss their profitability targets.

Icahn scores a point against Illumina

On the back of a bruising short seller attack by Hindenburg Research and a string of epic losses, Carl Icahn finally got a bit of good news.

The down-on-his-luck corporate raider pulled off a partial victory in a proxy showdown against gene sequencing group Illumina on Thursday when shareholders voted to oust its chair, John Thompson, and approve Icahn’s nominee Andrew Teno for a spot on the board.

Icahn’s gripes revolve around Illumina’s “reckless decision” to go ahead with its $8bn purchase of cancer screening group Grail without seeing whether it would be cleared by EU regulators under the purview of Thompson, a former Microsoft chair and director.

The battle isn’t over, though. Two other Icahn nominees failed to win enough votes, paving the way for Illumina boss Francis deSouza and director Robert Epstein to be re-elected.

In December, Brussels ordered Illumina to divest Grail and is planning to issue a fine worth up to $453mn for “gun jumping”. The US Federal Trade Commission has also ordered it to divest.

Icahn’s campaign against Illumina is one of the biggest activist scraps in years. Since 2012, only seven US fights have gone to a vote at companies with a market capitalisation of more than $30bn, according to analytics company Insightia

And it’s due to get messier. Icahn has called for Illumina to undo the “absurd and questionable” deal and oust deSouza, whose pay more than doubled in 2022 as Icahn revved up his campaign, “immediately”.

Francis deSouza
Carl Icahn is targeting Illumina boss Francis deSouza, pictured © Jason Henry/FT

After an ill-fated bet that the market would crash after the financial crisis has cost his publicly listed investment vehicle Icahn Enterprises $9bn over roughly six years, he’s not in a position to further lose out on his activist wagers.

The 87-year-old activist may have admitted to DD earlier this month that those trades were a “mistake”, but admitting defeat is another thing.

“I see this as only the first round in a continuing battle,” said Columbia Law School professor John Coffee. “The shareholders may yet be able to remove the CEO. But clearly the shareholders were nervous about giving Icahn even three seats on the board.”

The Caymans fight back

For the past few years, Singapore and Hong Kong have been trying to bring about a radical change to the way capital flows around the world, particularly when it comes to where Asia-based hedge funds, private equity funds and super-rich families park their assets.

The two financial centres have set up new fund structures, which enjoy government subsidies and are lightly taxed. They look like a direct challenge to offshore centres such as the Cayman Islands.

Now, the Cayman Islands is fighting back, DD’s Kaye Wiggins and the FT’s Mercedes Ruehl and Leo Lewis report.

Its financial services minister André Ebanks visited Singapore and Hong Kong this month. He’s planning to set up a new office in one of the cities — he hasn’t yet decided which — that would help set up Cayman Islands-based funds.

Officials in the British overseas territory “think there’s a threat to their position”, a Hong Kong-based funds specialist said. “They haven’t had as much competition before.”

He and his colleagues are also trying to keep existing clients on side. A financier whose firm uses Cayman Islands funds told the FT the delegation wanted to reaffirm their relationship during their visit, in the face of what was likely to become sharper competition from Hong Kong and Singapore.

The Cayman Islands “have one particular strength”, a Singapore-based executive who met the delegation said. “They are far away from the long arm of the Beijing government.”

Job moves

  • DWS chief financial officer Claire Peel has quit the Deutsche Bank-owned asset manager.

  • Starling Bank founder Anne Boden is stepping down as chief executive in a surprise announcement she said was to remove any potential conflict of interest from her being a significant shareholder in the fintech.

  • London Stock Exchange Group CFO Anna Manz is leaving to take a similar position outside the financial sector.

  • The International Capital Market Association has named RBC Capital Markets executive Janet Wilkinson as chair and Crédit Agricole executive Jean-Luc Lamarque as deputy.

  • UBS senior dealmaker Evan Riley is joining BNP Paribas head of equity capital markets for the US, per Financial News.

Smart reads

Streaming wars The Wall Street Journal dug into the high-stakes battle for Hulu between the streaming platform’s begrudging co-owners Disney and Comcast, complete with legal threats and duelling valuations.

Flying the coop JPMorgan’s rescue of First Republic triggered an exodus of wealth advisers from the regional lender, many of which flocked to its white knight’s rival Morgan Stanley, Forbes reports.

Waiting for Bordeaux The New York Times investigates the tale of luxury wine store Sherry-Lehmann’s missing bottles . . . and unpaid taxes.

News round-up

Apollo co-founder Leon Black wins dismissal of sexual assault lawsuit (FT)

UBS gains EU antitrust approval to acquire Credit Suisse (Reuters)

PwC staff implicated in Australian tax leak told to step back from government work (FT)

Santander targets dozens more Credit Suisse hires in M&A push (Bloomberg).

BC Partners mourns sudden passing of Max Kastka (Financial News)

Seven & i/ValueAct: Japan flips ‘closed’ sign towards activist (Lex)

SVB’s biggest customers, revealed. Kinda (FT Alphaville)

Due Diligence is written by Arash Massoudi, Ivan Levingston, William Louch and Robert Smith in London, James Fontanella-Khan, Francesca Friday, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Antoine Gara in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to

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