There’s a fascinating back story to the biggest media deal of the year, published in the Financial Times itself this morning. The Pink Paper, so called for the unusual colour of its newsprint, has been sitting uncomfortably within the Pearson Plc for some time. Pearson has been moving its operations away from media, at times offloading assets at apparently giveaway prices, like the “sale” of its 50% of South Africa’s BDFM to its partner Times Media for one rand. But with the FT, the seller enjoyed a dream scenario with one terribly keen and fairly well endowed suitor, German group Axel Springer, edging ever higher in price higher during months of engagement. Only for it to be trumped by cash flush, price inelastic Japanese media giant Nikkei. After a last minute scramble, Nikkei agreed to pay a chunky ÂŁ844m for, essentially, the Financial Times newspaper. In South African terms, that R16.4bn would buy an HCI, owner of eTV and a string of other assets; or two Caxton’s. – Alec Hogg Â
By FT journalists Arash Massoudi in London and James Fontanella-Khan in New York
Pearson’s 58-year ownership of the FT Group ended in high drama on Thursday as the Japanese media group Nikkei trumped its rival with an eleventh-hour bid. “It went down to the last ten minutes,” said one person close to the talks.
Axel Springer, the German media group, had victory in its sights early in the day after a long courtship of the UK-based news group. But it ended up being beaten to the prize by Nikkei, Japan’s largest media company, which only began exploring an offer for the Financial Times five weeks ago.
Led by chief executive Mathias Döpfner, Axel Springer had been in talks with the FT Group since last year about a minority investment in the group. The discussions evolved into outright takeover discussions over the past several weeks, according to people close to the matter.
But Mr Döpfner’s desire to further catapult his company, publisher of the tabloid Bild on to the global stage, was thwarted when Nikkei unexpectedly made an all-cash offer early on Thursday that surpassed Axel Springer’s best proposal.
“Things moved very quickly,” said another person involved. Nikkei and Pearson agreed that if a deal was signed by 2pm, they would need to announce it by 3pm, given that the decision was being made during market hours, two people said.
After being notified of the Japanese group’s new offer and unwilling to bid any higher, Axel Springer immediately issued a statement, saying it rejected any speculation that it was bidding for the FT. But executives at the company were reeling from the defeat.
Seven minutes later, at 3:13pm British time, Pearson revealed to the market the terms of the Nikkei deal. The FT Group would be sold to the Japanese company for £844m.
The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.
The deal will not include two of the group’s valuable assets: a 50 per cent stake in The Economist, the profitable and influential weekly magazine with 1.6m subscribers; and the FT’s head office building on the Thames river in London.
For Pearson, the deal comes after a long period of introspection. Under John Fallon, who took over as chief executive in 2013, Pearson has tried to push deeper into the education market. Unlike Dame Marjorie Scardino, his predecessor, Mr Fallon never committed to the FT’s ownership as forcefully as she did.
In an interview with the FT on Thursday, Mr Fallon said Pearson had found it increasingly hard to focus fully on both education and the fast-changing news market. “It’s hard to ride both horses equally well,” he said.
He highlighted Pearson’s past investments in the FT’s international and digital expansion, saying “I don’t think investment was the primary issue”.
But senior FT managers were becoming frustrated as they fought for greater investment to boost its digital efforts and to better compete with rivals such as the Wall Street Journal and Bloomberg, as well as emerging online publications such as Quartz.
According to one senior person at the FT Group, the concern was that Pearson’s reluctance to invest more heavily risked letting the global business news brand fall behind its rivals at a time of intense competition.
Near the start of this year, Mr Fallon agreed to explore a sale to find a better home for the news group, after discussing both commercial and editorial considerations with the Pearson board and FT management.
He told Financial Times’ staff after the Nikkei deal was announced that following discussions with senior members of the paper’s editorial team and management, it became clear that Pearson was not the best home for the newspaper any longer.
Axel Springer had been one of the first companies to approach Pearson about a potential partnership, according to people informed about the sale negotiations. Other options, including a minority investment by private equity groups were considered as well as a potential link with book publishers Penguin and Bertelsmann.
But Mr Fallon decided that Pearson should maximise the value from a sale. As Nikkei studied a potential acquisition, the company realised it would need to move quickly.
Advisers including Rothschild’s Warner Mandel and Takashi Ono and lawyers at Skadden Arps scrambled to assemble a bid, working only with the knowledge that there was another very serious contender in the process.
(c) 2015 The Financial Times Ltd.
And here’s how Bloomberg sees the deal:
(Bloomberg) — For Nikkei Inc., Japanâs biggest financial news group, Thursdayâs $1.3 billion deal to buy the Financial Times capped a lengthy pursuit of the pink-hued newspaper.
Eager to diversify outside of its home market and gain gravitas in the English-speaking world, Nikkei had approached owner Pearson Plc repeatedly over the past few years about buying the FT, only to be told the title wasnât for sale, according to people familiar with the matter who asked not to be identified because the information is private.
That changed suddenly several weeks ago, when Pearson and its chief executive officer, John Fallon, had a change of heart that opened a path to a deal.
The following is based on off-the-record conversations with people involved in the sale, all of whom asked to remain anonymous in order to speak freely.
The race that followed between Nikkei, Germanyâs Axel Springer SE and other suitors for FT Group, which includes the storied newspaper and smaller publications, showed how top-tier media properties can still attract intense interest from potential buyers, even as digital competitors upend the journalistic landscape.
Nikkei and Springerâs competition came so close to the wire that the FTâs own homepage was still reporting the German group as the leading bidder after Nikkei had announced its deal.
Starting Gun
Pearson fired the starting gun early in the British summer, when the company put word out to potential buyers that it was prepared to sell.
After years of on-and-off deliberations, Fallon believed a long and costly project to transform the FT into a digital-first media platform was beginning to bear fruit, making it ripe for a sale. At the same time, Pearsonâs corporate mission was moving sharply away from that of the FT. The company has shed most of its media properties to focus on its more lucrative education businesses.
Axel Springer, the publisher of best-selling tabloid Bild and an investor in Business Insider, also forced the issue. Along with Google Inc. and a number of private-equity firms, it had been in discussions with Pearson since the beginning of the year that focused on content and distribution partnerships. In Axel Springerâs case, though, those discussions had gradually turned to serious deliberations about an outright acquisition.
Potential BuyersÂ
Eager to get the best possible price, Pearson then asked its advisers to contact other potential buyers to gauge their interest, among them Franceâs Vivendi SA and Bloomberg LP, the parent of Bloomberg News.
Nikkei and Springer soon emerged as the most serious contenders for the paper, for which Pearson was asking about 800 million pounds ($1.2 billion).
Spokesmen for Pearson, Google, Vivendi and Bloomberg declined to comment, while a representative for Axel Springer didnât immediately respond to a request for comment. Bloomberg competes with the FT to provide news and financial information.
Incongruously for a title associated with dapper London bankers, within Pearson the sale effort was code-named âFalstaff,â for the portly, hard-drinking Shakespearean buffoon. The primary venue for talks was more appropriate to the FTâs history: Pearsonâs executives and advisers huddled at the offices of the law firm Freshfields Bruckhaus Deringer on Fleet Street, the traditional home of the British press.
Freshfields, boutique investment bank Evercore Partners Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. advised Pearson.
Pole Position
Efforts to keep discussions under wraps stumbled on Monday, when Bloomberg reported that the company was exploring a sale of the FT and named Axel Springer as a potential buyer. With Pearson earnings looming on Friday, the talks accelerated, with a goal of getting a deal agreed beforehand.
Up until Thursday morning, Axel Springer was clearly in the pole position. An hour before the deal was announced to the public, the company was still in the lead. That changed suddenly when Nikkei responded with a knockout last-minute offer about 100 million pounds higher than Axel Springerâs.
In an e-mail to subscribers around 3 p.m. London time, Nikkei announced that it was the winner â- stunning FT journalists whoâd already begun to joke via Twitter about practicing their German.
The intensity of the competition was reflected in the 884- million-pound price, which excludes Pearsonâs stake in The Economist and the Thames riverfront building that houses the FTâs London headquarters.
It values the FT Group at 35 times adjusted operating profit. The Washington Post was valued at 17 times a similar earnings metric in its 2014 sale to Amazon.com Inc.âs founder Jeff Bezos.
âGood Homeâ
Nikkei, advised by bankers from Rothschild, had to bump its offer price several times without knowing for sure who its competitors were, or how numerous. Skadden Arps Slate Meagher & Flom was Nikkeiâs legal adviser.
The deal is the largest foray ever into English-language media by a Japanese company. It follows much smaller overseas experiments by Nikkei, including a deal last year to buy a stake in the design and lifestyle magazine Monocle, and the 2013 start of the Nikkei Asian Review, an English weekly.
The FT, with some 600 journalists, deep links to the British establishment, and a long history of editorial independence, will be a far greater challenge.
âWe wanted a new owner committed to editorial independence and focused on journalism,â Fallon said on a Thursday conference call. âWe believe we got fair value for the FT and found it a good home.â
