Before the Brexit vote, the Daily Mail was a ferocious advocate of Britain splitting from the EU. It may be time for the right-wing tabloid's parent company to consider a different kind of separation: dividing its business-to-business activities from the traditional media ones.
A new CEO, ex-management consultant Paul Zwillenberg, took over in early June so it's opportune to consider changes. Admittedly a split wouldn't instantly solve the problems of declining print advertising and an ageing newspaper readership, nor help the company figure out how to earn money from MailOnline, which uses salacious celebrity news (paraded on its infamous "sidebar of shame") to draw 214 million monthly visitors.
There's also the unmoveable obstacle of the Rothermere family, who own 22.4 percent of the shares and 100 percent of the voting rights in Daily Mail & General Trust, the parent group. They wield serious political clout because of the Mail's grip on England's provincial middle classes, and would hesitate to expose the newspaper to a separate listing without the B2B division to soften any decline.
Yet Zwillenberg needs answers to long-term structural questions. The company warned in April that the operating margin at DMG Media -- home to the newspapers and website -- would be 10 percent for the year compared with an earlier goal of 13 percent. Results for the three months to June offered some respite as ad sales fell a mere 4 percent, compared to 8 percent in the quarter before. But few would say newspapers have a bright future, even one with the Mail's dark gifts.
A split would be one way of getting rid of the discount that investors apply to DMGT shares because its assets have little in common. While its roots are in print, which accounted for almost 40 percent of sales and 30 percent of operating income last year, the company has diversified in the past decade. It now provides information for the property, education and energy sectors. It owns a conference and events business, as well as 68 percent of financial publication Euromoney.
David Reynolds at Jefferies reckons DMGT is worth at least 740 pence per share on a sum of the parts basis. The average price this year is about 10 percent below that. Perhaps more important, splitting up the business would let managers focus on the specific problems at each unit.
The most pressing task for the new CEO will be trying to work out how to make money from MailOnline to shore up the media division's future. Yet that could mean less attention for B2B, which on its own might command a higher valuation similar to peers Relx and Informa. A new B2B boss would be empowered to make a decision on Euromoney, either selling or buying out the minority shareholders, and fixing problems at RMS, the risk management software arm.
There are, of course, reasons for caution about a separation. Newspapers tend to carry heavy pension liabilities, which might weigh on a standalone media unit. As historic owners, the Rothermeres are relaxed about the share price, preferring to worry about long-term earnings. Minority shareholders have been well looked after with progressive dividend payouts.
All that said, newspaper assets are horribly unpopular right now, so investors would probably respond favorably to a separation -- especially one that promises improved performance in both units. Plus a split could be engineered to leave the Rothermere family control intact over both businesses. Unlike Britain after its exit from the EU, they really might be able to have their cake and eat it too.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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