Business

Saturday October 24, 2009

In one fell scoop

By ANITA GABRIEL


IT was hardly a shock – Media Prima Bhd’s revelation a week ago that it plans to takeover 43% owned The New Straits Times Press (M) Bhd (NSTP). The takeover bid ends three months of heated speculation and sent the NSTP counter, long gripped by a state of ennui, on a sugar rush.

But unlike most takeovers announced in recent months that sent the target stocks chasing after the offer price (in some cases, they surpassed the offer price, resulting in an upward revision of the offer), NSTP’s share price did the exact opposite – it fell with a thud.

From a high of RM2.51 two days prior to the announcement on Oct 16, the stock saw a massive correction to RM2.09 the following Monday. Understandably, the deal has drawn its fair share of detractors, for its perceived-to-be unattractive offer price as well as concerns that the exercise undermines the value of the company, which not always, are the same thing.

As the country’s oldest newspaper group and the first media company to secure a seat on the stock exchange and that too for over three decades and six years to be exact, there is undoubtedly some who have a strong sentimental attachment to NSTP.

Given a chance, they’d rather NSTP remain listed and safeguard its long-standing brand instead of facing the risk of brand dilution after being swallowed up by a larger entity.

Each brand has a following and must stand on its own. As a CEO, I don’t want to change that as I don’t want one product to cannibalise the other... DATUK AMRIN AWALUDDIN

In fact, the NSTP brand is more recognisable than that of Media Prima Bhd, which only came into being in late 2003.

Even Media Prima’s CEO of two months, Datuk Amrin Awaluddin readily attests to that: “If you tell some people, Media Prima, they may not be able to immediately recognise what we do. But if you tell them TV3, they will immediately know.”

“Each brand has a following and must stand on its own. As a CEO, I don’t want to change that as I don’t want one product to cannibalise the other,” he says, in an interview with StarBizWeek. “I understand that some are passionate about NSTP and its listed status... it was the first media company to be listed. But rest assured, we intend to maintain its brand and identity.”

The plot

Truth is, the group’s senior management have long been plotting how to maximise Media Prima’s substantial investment of 43% in NSTP which given its neither-here-nor-there associate status (between a subsidiary and a separate company), has been a major stumbling block.

Another dampener is that Media Prima is not able to consolidate the financials of the newspaper group, hence limiting the value it can derive from the newspaper group.

“Personally I’ve looked at it for the past four years,” says Amrin, who joined the group as chief financial officer of Media Prima’s predecessor Sistem Televisyen Malaysia Bhd in Nov 2001 and was involved in the radical restructuring of these assets under a massive plan to rescue the then beleaguered Malaysian Resources Corp Bhd.

There were several options on the table, one involved divesting its stake in NSTP, but the pickings were slim. The other involved distributing dividend in specie but it was not good enough “It would have been only a one off gain to shareholders... our cost is RM3 and the market price of NSTP has not touched that for the last three years. So, we ruled that one out,” says Amrin. With that, the appeal to privatise NSTP beckoned.

The takeover

The takeover of NSTP by Media Prima is conditional upon the latter achieving a 51% acceptance and involves a one-for-one share swap with an exchange price of RM2 and 1 free new warrants in Media Prima for every 5 offers shares accepted.

That effectively values NSTP at RM2.10, a steep discount to the market price then. “Without our offer, there would not be a price of RM2.46 (the all-time high reached in July following leak of the takeover),” Amrin correctly points out.

Still, some NSTP minority shareholders are clearly incensed, saying that Media Prima shareholders have the fair end of the deal. A few reasons back that view.

The 52-week high and low of NSTP’s share price are RM2.54 and 97 sen and RM1.92 and 85 sen for Media Prima. A peeved minority shareholder asks: “I was wondering how the average of RM2 for Media Prima was derived when the highest reached was only RM1.92!” “It’s not fair to us. Why not pay cash upfront instead of just issuing paper,” cries another minority shareholder.

Even Bursa Malaysia shot out two query notes to Media Prima earlier in the week to justify the deal’s valuation of both Media Prima and NSTP.

Media Prima replied that the valuation of NSTP is justified based on its fundamentals, future prospects and earnings profile. As the offer entails a share swap, the company says apart from the offer price and issue price of both companies, it is also important to consider the fairness of the exchange ratio to both shareholders.

Amrin reiterates a point, which he will likely have to do many more times going forward: “This is not an exit option. We are not asking NSTP shareholders to exit. We want them to swap their shares for shares in Media Prima... they can still derive benefit of being shareholders of NSTP but this time, not only have exposure to a single product (print) but also to our various media platforms. Ride with us in the enlarged group.”

Izz Al-Din Maslan of AmResearch echoes similar sentiments. “We see the exchange of shares providing an opportunity for NSTP’s shareholders to be part of the enlarged Media Prima. More so, we think the newspaper segment is gradually losing traction to online media...,” he says.

The other beef is that at 0.46 times price to book (NSTP’s net tangible asset (NTA) stood at RM4.56 per share), many say the deal undervalues NSTP.

But there’s another dimension to that argument . “NSTP is a media company. It is not a property developer or construction company to be valued at NTA,” says Amrin.

Media Prima’s group chief financial officer Amil Izham Hamzah drives home the point further: “About 75% of NSTP’s NTA is fixed assets, two thirds of which comprise operational assets such as printing plant and equipment.”

“The privatisation is not about unlocking property value but about reaping synergistic value. This exercise is not about a property play. It’s as simple as that,” says Amrin.

Media Prima will have to recognise a negative goodwill of RM281mil (for acquiring NSTP at below book value) upon completion of the takeover. “It’ll be a one-off hit in our profit and loss but it’s a non-cash item... it’s just an accounting quirk...” says Amil.

What’s in store

It’s obvious what the group, when integrated, can do to tap the synergies. Cross marketing or promotion is one obvious possibility and distributing content on the numerous platforms, the other. What else? Amrin is keeping things close to his chest.

But the group’s plan to raise RM150mil via a bond issue signals that it is building up a war chest to continue to buy its way up the ladder.

Is Utusan on its target list?. “No. Write that down. No!,” says Amrin categorically, clearly eager to quash that rekindled rumour following an earlier botched plan to merge both NSTP and Utusan which threatened to blow up into a political minefield.

“But it will only involve domestic assets,” says Amrin. Once bitten, twice shy, maybe? Media Prima has been on the ropes for over a year because of its investment in the Philippines, TV5, which has been haemorrhaging. The good news – it will soon be rid of TV5 for RM53mil as it has found a buyer. To date, the group has advanced some RM130mil to the operations. It recognised losses of RM31mil in financial year ended Dec 31, 2008 (FY08) and RM24mil in the first half of 2009.

According to Azmil, based on the divestment price, Media Prima will recognise further losses in its income statement for the third quarter of 2009 of some RM22mil.

“This means that for FY10, Media Prima’s results will exclude any results from TV5. There will be better clarity for our investors and the market as a whole,” he says.

Bigger and bigger

Indeed, it is hard to poke holes on the appeal of a fully integrated media company with presence across all media platforms – the largest free to air TV viewership, the second largest newspaper circulation, the second largest group of radio listeners, leading outdoor media network and a new media offering.

It will have a bigger room to reap synergies and strengthen operational efficiencies. Its financial scale will also widen. The enlarged group will have an expanded revenue base of over RM1bil and net profit exceeding RM100mil.

“But that’s assuming we don’t do anything following the takeover. If we tap the synergies, cross sell and incur savings through rationalisation of back office and so forth, then the contribution to bottom line will be even better,” says Amrin.

All that’s left now is for Amrin and team to keep their fingers crossed that NSTP shareholders will buy that story. To gain control, all Media Prima needs is another 8% acceptance. A walk in the park, some say.

But that’s not good enough. The gameplan is “total consolidation”, says Amrin and to delist NSTP. “Investors will have more clarity. We want to have one single listed company with various subsidiaries in multiple media platforms.”

Will shareholders bow to the takeover move? It’ll definitely be a scoop for Media Prima if they do.

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