Rothermeres’ Daily Mail bid frogmarches investors to the exit
The UK’s biggest selling daily newspaper has been a noisy critic of what it calls “pandemic plunderers” and acquiescent boards faced with lowball bids from wealthy private buyers.
Investors in the paper’s owner, Daily Mail and General Trust, know the feeling given the offer from the Rothermere family to buy the 72 per cent of the media group’s non-voting stock that they don’t already own, via their offshore holding company RCL.
The irony is that this is a deal that fundamentally makes sense. DMGT has been selling off commercial media assets in recent years, at good prices. An unexpected bid for catastrophe modelling business RMS, sold to Moody’s for £1.4bn in August, and the listing of Cazoo, the online car site in which DMGT had a 20 per cent stake, left the group with a lot of cash and a shortage of places it wanted to invest it.
Jonathan Harmsworth, Viscount Rothermere has a point when he suggests that a much smaller, more consumer-media focused DMGT might struggle on the public markets. The company’s hodgepodge of assets, as well as the Rothermeres’ 36 per cent economic interest including all voting shares, means it has always been an acquired taste.
Hence a convoluted offer to return cash to shareholders and take the remaining business private. Investors get 568p in cash after recent disposals, Cazoo shares worth 412p at Wednesday’s close, a final dividend of 17.3p funded by the Rothermeres and an offer of 255p a share for the remaining newspaper and media assets.
Bundle that up, and you get a price pitched at a modest 15 per cent premium to where the shares closed on Tuesday, and 20 per cent above where they were before the details of this multi-part deal were first mooted in July.
The bundling though is the problem, in a transaction that the “non-conflicted” directors on the board have allowed to be structured in what feels like a faintly coercive way.
Investors might well welcome the return of funds that DMGT doesn’t have good ways to invest. They might appreciate a take-private offer. But there is no good reason for the two to be linked.
DMGT is a company that has generally retained its assets (and RCL is structured to hold shares, not cash). But in making each bit conditional on the other, minorities are being told to accept an ungenerous 255p take-out bid or be left holding a cash-heavy, underpowered media business for which there is no other possible buyer.
Investors, say people close to the deal, are just being given a choice at an important moment for the group. Some may ignore the fact that one arm is behind their back as they head for the exit, even if the rump valuation represents only about 0.85 times Barclays’ forecast 2022 sales.
But DMGT’s success in realising value by breaking up the group seems to be stopping a couple of steps early, with a property data unit, a pandemic-battered events business and the consumer media titles remaining.
Majedie Asset Management, with 4.6 per cent of DMGT, thinks the largest businesses within the remainder of DMGT are worth double the 255p offer price. Another leading shareholder said they had “every sympathy” with Majedie’s view, pointing to the value in the Mail Online and the property information unit.
There was some doubt that minorities would even get a say here at all. In the event, the deal rests on getting 90 per cent of non-RCL shares tendered — which already seems a stretch.
RCL could tighten the thumbscrews by dropping that to 50 per cent, which under standard listing rules allows them to delist the shares. Or they could bump the price: after all, points out Mark Kelly at investment bank Cowen, the special dividend (which includes Cazoo stock) is worth over £800m to the family versus £375m offered to buy out other investors.
One not-entirely unreasonable response is that this is the trade-off when you buy into a company with a wealthy, controlling shareholder. But managing that tension is the job of the directors. Who knows, too, what the flagship title and self-declared champion of the underdog would make of that logic?