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"The influential German media group, Axel Springer is seeking to go private with the help of US investor K are the greet paves that freeing itself from short-term market scrutiny will play the past for ambitious expansion plans Katie Martin discusses the move with our ash CG and vice versa. So tell us a bit about the history of Axel Springer. Where does the company fit into the German media scene will re company was founded right after the war by access Clinger, the hugely powerful archetype, German media tycoon. The power of the company really has long rested on ownership of bills, the German, tabloid paper, which is the biggest selling newspaper in Europe and hugely influential still in Berlin circles. What has made spring, quite special was always had a very strong political stance is very conservative paper. It's as editorial principles that or the journalists have to sign up to those included before unification that papers had to work towards helping Germany reunify, very strong supporter of transatlantic alliance with the US, very strong supporter of Israel. So it's a sort of very powerful commercially successful. But. Also, the very value driven publisher. And so over the years, obviously, it has changed its make up quite drastically. Many of the regional papers were sold off and it's tried to reinvent itself. And it's quite successfully as digitally focused company. So obviously billed as the biggest title, but what would be the other name publications the rest of us over here in London might know about the other well-known old media opportunity, they have is developed, which is sort of conservative broadsheet daily, but a very sort of spectacle paper, whereas Il can be quite wild until very recently running topless photos on the front page every day, of course shipping, a famous people surprised by the financial times in two thousand fifteen but narrowly, failed them was beaten out by Nikai, but company has really tried to reinvent itself. As a digital company over the last decade in particular, and that has meant heavy investment in two areas. One is in the online ads business, both for property and for jobs. Where spring owns some of the biggest sites in Europe in the U K in France and Germany in particular. And that segment of the business now makes up by far the bulk of their earnings. So she decided very early on to exit some of their old media businesses and shift money into new media. I'm so on the one hand that is this online ads business. And on the other hand that's investments in properties, such as business insider, the US news sites which they bought in twenty fifteen and setting up a joint venture to launch political Europe, in Brussels, most change, what are the main shareholders wants take the company private? And what are the terms of the deal will there's been sort of falling out of love between management and shareholders in particular over the past year management, especially CEO matere Turner feels that Springer needs to invest invest, invest in the titular to show up the companies. Wrong position in the online business. And what has happened is that over the past year in particular, it had to downgrade its guidance largely because of the need for more investment. And so that's not on the management board. And clearly also either spring out of founder's widow who owns more than forty percent of the company's. Still, they feel that the company is at a stage where it needs to invest, where needs trade sort of short term earnings for long term prospects and shareholders just don't seem to be willing to go along with that. And that really is sort of Reuss of the idea to take spring a private and to do that. Feeder, Springer's widow and Mr. depth no who himself owns two point eight percent of the company have teamed up with KKR and they are offering shareholders, sixty three euros a share which is a forty percent premium to the undisturbed share price. But it's still quite substantially below where the share was only last year. So is this a? Good deal for the minority shareholders, who are going to be both out. Well, it was an interesting statement that came out of extra Springer on the day that the author was sort of finally made public and confirmed on the very same day they issued a pretty hefty profit warning. And so, basically the message to shareholders walls, whatever you think of this price that we're offering you, if you don't take it, you info quite a bumpy ride, because the company will prioritize investment over short term profit and over reliably raising the dividend, and these kinds of things that shareholders, like so probably the message to shareholders at least it's been it's not gonna get any better for you. If this deal doesn't go through. So Arash why would you know, big, shiny US private equity group like take care? Be interested in paying a premium to help the company take yourself by that. Well, there's a couple of dynamics at play. I mean first of all, kick yards a very big European presence. So they're already on the continent throw in the fact that actual Springer and build. In particular, come with a lot of social capital in the sense that you're playing with one of the most powerful and influential media companies in Europe and getting your hands on one of these prize, commodities is often very attractive for people if you think about the company's structure with free to stringer owning over forty percent of the company's control and Matisse dope. Never at their two and a half percent. The idea of ever really having a say in a company like this is a rare commodity. So if you're kick are, there's a couple of tractive reasons there now actual Springer has been thinking about this for some time, Amatya still who's the engineer of this whole transaction has been interviewing private equity firms over the last few months, I discovered in my reporting and selected KKR for a number of reasons. And so they are now teamed up and while importantly, the structure basically sees the kick AARP has to satisfy getting twenty percent of the minority shareholders. So if you think that free to spring controls about forty two percent Matisse stove close to three percent. They need to get to about sixty five percents delist the company, and so that's why the offer comes with the terms that says care, I need I about twenty. Sent a minimum of twenty percent of the shares out once the private care will still be a minority partner, but they will have influence and so on so forth and in the European private equity environment. There are very few deals where you can put a check of a billion euros. I work in one go. So this is quite attractive for a number of reasons and obviously, the main reason why company like KKR goes into bed with anyone is to make a ton of money for its shareholders. So that's principally the goal here. So speaking of making a ton of money what all the plans for the company beyond the deal will you got to imagine there's a couple of things going on. There's probably some structural changes to the company and its alignment and jobs, which will probably be better executed private and out of the headlines wants. It's private. We don't get to see what's happening. It's a lot harder comes a lot less transparent. Some of the difficult decisions that public markets, create for management will no longer be there. So that means the restructure structure, fire people that will happen outside the glare of the public eye. Maybe some of the dirtier work inside the portfolio of assets that isn't as nicely managed. Can be shut off in ways that again, don't get the same attraction and equally. If you want to make big bets on certain other businesses, you then have firepower and the ability to go for it without public markets judging the transactions. So you have to imagine that there is a plan for kick AR to basically bring firepower to the table for them to pursue transactions to then ultimately see them in maybe five years time returned to market at a big profit for everybody. So companies have traditionally preferred to raise cash from shareholders on the public markets toward extended this going into reverse. This is a bit of a unique situation. And in fact, Qiqihar has experienced doing this in Germany, where there's typically large foundation or large shareholder as the cornerstone investment care help, take a market research company called Jeff K private in Germany, similar structure almost the same playbook. Twenty percent added onto the deal to delist and to it that way. It's a different form of LB OBE leveraged by because you're not buying out the whole thing as majority partner, you're buying it as a minority part. But all the advantages of elbow exists, as long as you can work through the management structure, which you won't have as much influence over. So I don't think this is a major trend in terms of public private markets. I think it's unique to companies where there's a cornerstone investor with forty two percent sitting there and the options are limited. So this is kind of a unique structure almost German specific and a lot of ways and care has done it before. It's very specific to kick AR. So what are the big challenges for the company now is it getting the daily of the line, or is it taking what could be quite painful decisions once, that's all done? They probably have a plan for what they're going to do once. It's all done the hard part is getting across the line. So if you're kick AR union to make sure that twenty percent of the investors sign up to this the could play hardball with you. There's history of people like Elliott and some really clever investors going in enforcing railroading companies to pay more money in deals. There's a added complication, which is that there are heirs of the Springer family who also have roughly ten percent of the company axel. Vents Springer spends finger and Ariane Melanie Springer who have about ten percent combined now. My reporting suggests that it's not all hunky Dory on the family side and it's not like everyone's on the same page. I'm not saying it's like HBO show succession, but, you know, families are complicated in the politics within that is always tricky as we've seen in, in other media family like the Murdoch's. So the question is will these to put their ten percent in, because that already gets K are halfway there, or do they take the view that this is going to be, so profitable once they take it private and fix it up that they should stick around and that automatically add some complication because then it shortens lists, the view is they're going to ride the journey still and want to get rich off what happens. So they'll have to convince the other shareholders, this is a good deal. And that's the primary challenge right now families, plus money always equals drama. Right. And great headlines and headlines, she great for us. But Tobias how is this going down in Germany? How's it being viewed, this surprisingly little political reaction to this? I mean as the rash mentioned. Spring is hugely politically influential, all the perhaps, less with the Mackel government than with all the previous ones. I think it's in very much presented here as a move to shore up the sort of long term future of the group. It's been presented and also launch the scene. I think as a move in favor of sort of a long term view, rather than short-term pressure from the capital markets. And as we know that kind of discourse tends to go down quite well with the German public. So they're certainly been very little criticism of this deal. And I think there's also sort of expectation or hope that extra could use this window can use this freedom of being a private company to bulk up and protect itself against, for example, new competition from the likes of Google, which is pushing very hard into the market for online small ads. So I think this is a deal that is really metro little criticism from any corner him. That was Katie mountain. Compass markets editor, soaking Arash Markazi corporate finance deals editor and Tobias the Berlin correspondent, thanks for listening. Don't"
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