Court inquiry into equity fund practices in publishing group

In January 2008, the Enterprise Section of the Amsterdam Court of Appeal called for an examination of matters surrounding PCM Publishers – the country’s third largest newspaper and magazine publishing group. In 2004, PCM was taken over by the UK-based private equity company Apax, after which its financial situation worsened. At the request of two trade unions, the court ruled that the corporate policy pursued is open to question and ordered an investigation.

Strengthening of PCM’s market position

PCM Uitgevers NV (PCM Publishers) is one of the largest publishing and printing companies in the Dutch language region. The company primarily publishes daily newspapers – including de Volkskrant, NRC Handelsblad and Trouw – along with magazines, freesheets, trade books and educational publications. Until 2004, PCM Publishers were owned by separate foundations, of which Stichting Democratie en Media (SDM) was the most influential as the majority stakeholder in the company. In November 2003, PCM and its shareholders reached a decision to look for a financially sound partner to further expand its market position in the publishing industry through acquisitions. The decision was supported by PCM’s board of supervisory directors, its central works council and the editorial boards of its newspapers.

PCM’s financial situation worsens

The PCM Holding was established in 2004. This took place within the context of Investments joining the circle of PCM shareholders. Investments is based in Luxembourg and forms part of the UK-based private equity investment group Apax Partners Ltd, which then became the majority shareholder of PCM.

In 2007, three years after the takeover, SDM repurchased the PCM shares of Apax. However, PCM’s financial position had worsened considerably over this three-year period. For two trade unions – the Dutch Journalists’ Association (Nederlandse Vereniging van Journalisten, NVJ) and the Trade Union for Knowledge, Information and Media (Vakbond voor Kunsten, Informatie en Media, FNV Kiem), which is affiliated to the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) – this provided sufficient grounds to request the Enterprise Section of the Amsterdam Court of Appeal to launch an investigation into PCM’s management on 10 January 2008 (LJN BJ1657). The right to request an investigation (enquêterecht) into company affairs was granted to trade unions in 1971.

Trade unions call for investigation

Both trade unions argue that the company has been burdened with enormous debt since the arrival of the Apax group as a company shareholder. They declare that long-term liabilities rose from €24 million to €590 million in 2006; moreover, the available figures reveal that PCM is not capable of structurally carrying the charges arising from the funding structure, which was put in place when Apax became the majority shareholder of the company in 2004.

On selling its stake in PCM Publishers to the newly established PCM Holding in 2004, SDM generated significant financial results, and the Apax group achieved an excellent yield through interest accrued on the subordinated loan and on the sale of its PCM Holding shares in 2007. In sharp contrast, PCM Publishers was left with a negative yield from 2004 to 2006, along with eroded shareholders’ equity and heavy debt. The requesting party, namely NVJ and FNV Kiem, asserts that the resulting imbalance is so pronounced that there are grounds to question whether the corporate policy pursued may be in conflict with the interests of PCM Publishers and its business interests.

Moreover, the trade unions object to the management participation scheme, on the basis of which managers received 45 times their original investment. It only became obvious through the 2006 annual report that managers participating in this scheme carried limited risk, since 80% to 95% of the contribution was invested in a loan offering a guaranteed yield of 12.36% and the remainder could be considered actual participation of the managers.

Enterprise Section favours unions

The Enterprise Section of the Amsterdam Court of Appeal has favoured the trade unions’ objection on all points. In particular, it questions whether the different decisions were indeed in the interests of the company and has called for further investigation. As a result, two investigating officials were assigned the task of reporting to the Enterprise Section. To this end, they have been awarded a budget of €150,000 which, based on statutory requirements, must be paid by PCM.

Robbert van het Kaar, Hugo Sinzheimer Institute (HSI)

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