Commentary: SPH’s media demerger: important for shareholders to vote

Date: September 6, 2021

This is the original commentary by SIAS, unedited version from The Business Times, The Straits Times and Lianhe Zaobao publications on 06 September 2021

Before the end of this year, shareholders of Singapore Press Holdings (SPH) will have to decide on the fate of their company, once a prominent blue chip but one that has now fallen on difficult times, mainly because of a structural decline in its media advertisement revenue.

This decline has been reflected in the company’s shares; the price having fallen from the S$4 level in 2014 to around S$1 in November 2020 despite the company having diversified into other non-media areas like property, aged care provision and student accommodation.

Indeed, the fact that SPH was removed from its own benchmark blue chip Straits Times Index in June last year because the company’s market capitalization had shrunk below the threshold for index membership points to urgent need for action to revive its fortunes.

That action has now come in the form of a major restructuring that is proposed to be undertaken in two steps. The first was announced in May and involves hiving off the loss-making media unit into a company limited by guarantee (CLG), whilst the second was announced in August and is a takeover-cum-privatization offer from Keppel Corporation.

Both will require shareholder approval, the first at an extraordinary general meeting scheduled for 10 Sep, the second also at an EGM that will be held before year-end – depending on the outcome of 10 Sep meeting.

At the 10 Sep EGM shareholders will have to vote on two items. The first is whether to sever ties with the media business by placing it in a CLG, which is a not-for-profit entity that will initially receive financial help from SPH worth S$80m in cash and S$30m in shares.

This is essentially a disposal of a substantial business, for which the regulatory requirement is 50% of participating shareholders to vote in favour.

The second item on the 10 Sep agenda is the conversion of each management share into one ordinary share, and the related adoption of a new constitution. This is to ensure that SPH is no longer subject to the provisions of the Newspaper and Printing Presses Act (NPPA) which limits each shareholding to only 5 per cent.

As this proposal involves a change in the company’s Constitution, the regulatory requirement is a vote of 75 per cent in favour.

Here it is important to note that both resolutions need to pass before the Keppel deal can proceed. It is also crucial to note that the deadline for filing of proxy voting forms as well as to register for attendance at the online EGM is 2.30pm on 7 Sep.

Should SPH jettison its media business and put it in a CLG?

At a recent dialogue session with SIAS, SPH’s chief executive officer Ng Yat Chung spoke of the structural, long-term decline of print, how reading habits have changed and how revenue from the company’s digital and online initiatives have been unable to make up for the decline in print advertising, especially the Classified advertisements.

He described the decision to jettison its media arm as “difficult” but pointed out that if media continues to be part of the company with losses still expected in the foreseeable future because revenue will continue to fall, the share price will likely remain depressed.

He said the value of the media business on the books is about S$250m and that if losses continue to be incurred, this value will be impaired. The S$110m in cash and shares that SPH plans to inject into the CLG is roughly equivalent to a few years’ worth of losses, said Mr Ng.

If both resolutions are approved on 10 Sep, then the CLG would be free to pursue new funding options that a listed company subject to the NPPA could not.

This is essentially what the financial advisers for the proposal have concluded. In an Aug 17 letter to the SPH board of directors, Evercore Asia (Singapore), which was appointed financial adviser to the board, noted that the proposed restructuring of the media business “is in the overall interest of the company and shareholders”.

By voting in favour of the restructuring, Evercore noted that shareholders would not incur the “potentially significant and recurring losses of the media business”.

Evercore said the move will allow the company to “set a clear strategic direction with a focus on the real estate sector and related segments of student accommodation and aged care”.

On balance, it is difficult to find fault with these recommendations. There is no doubt that print advertising is no longer as lucrative as it was and to persist down this route does not make commercial sense.

The Keppel offer

At the SIAS-SPH dialogue, Mr Ng said that there were more than 20 parties for proposals for SPH’s non-media assets and that this competitive process was overseen by a Board Steering Committee which eventually settled on Keppel as it made the best offer.

The Keppel deal is that for each SPH share, shareholders will receive S$0.668 in cash, 0.596 Keppel Reit unit (valued at S$0.715) and 0.782 SPH Reit unit (valued at S$0.716) per share. In total and using prices prevailing when the offer was tabled, this amounts to S$2.099 per SPH share.

If this is accepted, then SPH will be delisted and become a Keppel subsidiary.

However, it would be premature to start dissecting the merits of the offer as it will only become an option if both resolutions at the 10 Sep EGM are passed. If they are not, SPH could either end up still holding on to a loss-making business or still subject to the NPPA, or both, in which case Keppel’s scheme will not proceed.

It is therefore important that shareholders note the deadline for voting and make their views and voices heard.