Failed Financial Times bid shows Axel Springer caught between tradition and ambition
Axel Springer's failure to clinch a deal to buy the Financial Times lengthens a line of setbacks in a decade-old quest by Germany's biggest news publisher to expand abroad.
Once again, cautious bidding practices cost it the prize, revealing a complex dynamic within the family-controlled company, which is best known for its Bild tabloid but which calls itself a digital powerhouse with international potential.
The last-minute loss to Japan's Nikkei of a newspaper Axel Springer had coveted for years was clearly a blow to its management, but for some investors it was a relief, and not just in hindsight.
"Worse than not expanding internationally would be Springer overpaying for an asset," one top 10 investor told Reuters. "In that respect, shareholders gave a clear signal last week."
Axel Springer shares dropped two percent on reports it was bidding for the FT, but recovered that loss and ended the day higher after the company said it would not buy it last Thursday.
Japan's Nikkei bought the premier business newspaper for $1.3 billion (1.18 billion euros) from Pearson, just 100 million euros more than Springer was prepared to spend, according to a person familiar with the talks. The company declined to comment.
Springer CEO Mathias Doepfner, a former journalist at Frankfurter Allgemeine Zeitung and editor-in-chief at Die Welt, had long expressed the wish to buy a big English-language title.
Two people familiar with the talks said ultimately, the price was too high for a company with a market capitalisation of 5 billion euros, a conservative bidding strategy and aversion to debt.
Financial prudence has been key ever since Doepfner was appointed in 2002 by Friede Springer, widow of founder Axel who built the company in West Berlin soon after World War Two.
"Doepfner doesn't do anything he has not first calculated, so he was reluctant to counter the higher bid," one person familiar with the talks said.
The 72-year-old Friede is a hands-on shareholder and vice-chair of the supervisory board, who sees it as her task to protect the legacy of her late husband, according to German media, and is very close to Doepfner. Their relationship is described by some Axel Springer insiders as like mother and son.
In 2012, she gave Springer shares worth almost 74 million euros ($82 million) to Doepfner, at the time 2 percent of all outstanding shares. Doepfner now owns 3.1 percent of the firm.
Friede's involvement dates back to the 1980s, when she inherited about a quarter of Axel Springer shares. The Springer family's former nanny who had become the publisher's fifth wife had to fight her corner with other, German media elite shareholders including mogul Leo Kirch and the Burda family.
After buying out other shareholders and taking control of the publisher, Friede vowed she would never put herself in such a position again, a former Axel Springer worker said.
When Doepfner took over, he had three key strategies: first bring the company back on track after years of internal unrest and operational setbacks, then make the transition from print to digital and after that expand internationally.
But flirtations with global media brands have so far remained just that.
Last year, Springer walked away from buying U.S. publisher Forbes, which was sold to an Asian investor consortium in a deal that valued the prestigious company at $475 million.
A decade ago, it looked at British titles the Daily Telegraph or the Daily Express but soon backed out.
Earlier this month Springer was reported to be discussing a possible tie-up with German broadcaster ProSiebenSat.1 , which is about twice the size of Axel Springer.
But a day later Springer issued a statement saying Friede would not give up control, and on Wednesday, ProSiebenSat.1 and Axel Springer announced a project for digital start-ups but said they had no further tie-up plans.
Springer shares rose 1.5 percent and those of ProSiebenSat.1 were up 1.9 percent, outperforming a 0.2 percent weaker German midcap index and very close to the high they hit when news of the tie-up broke.
STILL ATTACHED TO NEWS
Instead of buying a trophy title, Axel Springer has taken stakes in financial blog Business Insider and U.S. youth news site Mic.com, and is a co-owner of the European edition of Politico.
In the first quarter, such digital products, especially classified ads, accounted for more than 60 percent of company sales and almost three-quarters of core profit.
Investors have rewarded the digital push with a 75 percent rise in the share price over the past five years, making Friede one of the richest people in Germany.
In May, news website Re/code reported Axel Springer was in advanced discussions with AOL to spin off its flagship Huffington Post content unit, citing numerous sources. AOL's new owner Verizon has since said it will not sell.
Axel Springer declined specific comment on its acquisition strategy but the statement on Friede's plans to retain control referred to a plan to transform into a so-called KGaA or partnership limited by shares, which would allow Springer to raise more capital and grow while protecting Friede's position.
To proceed, it would need approval at next April's AGM.
An Axel Springer manager, who declined to be identified, said the price for the FT was too high but added such an asset only comes to market once in a few decades. For Nikkei it represented a chance to move beyond a flagging domestic market.
The $1.3 billion FT price tag represented roughly a 35 times multiple for its core earnings. That is three times more than the value of Axel Springer shares, which trade at 11 times earnings, broadly in line with publishing peers.
"Why on earth was Axel Springer management preparing to buy a trophy asset for a silly price... when it touts itself as investing in fast-growing digital assets?" brokerage Berenberg asked after Nikkei's winning bid was announced.
A person familiar with Springer management's thinking said Doepfner would continue to focus on journalism and not make material change to its strategy.
"If it was up to the financial markets, Springer would have to sell off anything that is journalism and focus on classified ads," the person said. "But the soul of the company is journalism and without journalism there won't be Axel Springer."