(Bloomberg) –- Japan’s biggest financial news publisher has surprised the media world by bagging the Financial Times and doing so at quite a premium to recent newspaper deals. Now what?
Nikkei Inc., whose flagship Nihon Keizai Shimbun is Japan’s leading business daily, is paying $1.3 billion to Pearson Plc to buy the FT Group, which owns the salmon-hued paper with an editorial team of roughly 500 journalists in more than 50 locations around the world.
It’s quite a trophy, and it complements Nikkei’s strengths at home. Every morning on the packed subways of Tokyo, people are seen scrolling through the Japanese-language daily on their smartphones and iPads. Yet analysts say what the Japanese publisher is really buying is global influence and strategic smarts to build out its own emerging digital strategy.
“Nikkei has a huge staff — it’s sprawling — but they are mostly focused on news for the Japan audience,” said Ken Doctor, a media analyst for Newsonomics. “Those reporting resources could go into Korea, Hong Kong, Singapore and maybe China.”
The privately held Japanese media conglomerate publishes the country’s leading business daily with more than 3 million readers, including about 430,000 digital subscribers.
More Global
The two companies have similar businesses that until now have been on opposite sides of the globe. Both newspapers focus on finance and business, and both companies have stock market indexes prominent in their home territory.
Nikkei says it will use the FT to become more global and boost its digital growth. While the acquisition doesn’t include Pearson’s 50 percent stake in the Economist magazine, the FT has been one of the most successful newspapers in building a website that charges for content, building to more than 500,000 digital subscribers.
Both news organizations could combine their editorial resources to further expand in other markets in Asia and the Nikkei could benefit from using the digital capabilities of the FT to boost advertising and subscription revenue, Doctor said. The FT has about three dozen people in data science who crunch numbers to optimize pricing and work with advertisers to get the most from their spending, he said.
“Nikkei is the Japanese FT,” said Charlie Beckett, director of media at the London School of Economics. “It does give them (Nikkei) an organization that has been a hugely successful digital adapter.”
Nikkei, founded in 1876, generated 300.6 billion yen ($2.4 billion) in revenue last year, more than quadruple the FT Group. The Japanese media company’s operating profit was more than triple the FT’s 24 million pounds, though the latter is an adjusted figure.
Culture Clash
Despite the promise of the deal, Nikkei faces an array of challenges. First, Japanese companies don’t have a glorious track record when it comes to cross-border mergers. Among the flops: Nomura Holdings Inc.’s takeover of Lehman Brothers Holdings Inc.’s European and Asia businesses in 2008 and Softbank Group Corp.’s purchase of a controlling stake in Sprint Corp. two years ago.
Then there’s issue of contrasting newsroom cultures. The Nikkei is known for its ability to break news — less so for muckraking. For example, the FT was out in front of Japanese publications in unmasking an accounting scandal at Olympus Corp. in 2011.
Past Stumble
“No Japanese media ever controlled a big global paper in history,” said Yasuhide Yajima, chief economist at NLI Research Institute.
The Nikkei has stumbled in the past with foreign tie-ups. In 1997, the company inked a partnership with Dow Jones & Co. to combine their Japan-based newsrooms under joint editorial direction. The effort never really gelled and at one point, a partition was erected by Nikkei staff to cordon them off.
The Financial Times staff has been reassured by its management that the Nikkei would not take control of the newspaper’s finances or compromise its editorial independence.
“We will set the editorial budget,” Duncan Robinson, an FT correspondent, wrote from his Twitter account. “We will run the business. They will set the targets.”
That said, the Nikkei is paying a hefty premium for the FT Group and there will be pressure on management to generate earnings growth from the merger. The hands-off stance may not last forever, said Claudio Aspesi, an analyst with Sanford C. Bernstein.
High Price
The Japanese publisher’s $1.3 billion offer values the FT Group at 2.5 times 2014 revenue. In contrast, Jeff Bezos, the billionaire founder of Amazon.com Inc., paid $250 million two years ago for the Washington Post, a 60 percent discount to the newspaper’s sales.
“If the growth in earnings and cash flow doesn’t come fast enough, the temptation to try for synergies and cost consolidation will start to prevail,” Aspesi said. “Then there is the risk you mess up what is today a very successful formula.”
Challenges aside, Nikkei has certainly made a splash with its acquisition of the FT. Japanese Economy Minister Akira Amari, speaking after a cabinet meeting, said the deal means “there will be even more accurate reporting to the world on Japan’s economy.”
Jeff Kingston, director of Asian Studies at Temple University in Japan, said the Nikkei has been transformed overnight into a global media player.
“Essentially, they’ve bought themselves a Premier League team,” he said.
