Analyzing the FT as an acquisition target

Reuters blogger Felix Salmon takes a look at the operations of The Financial Times in the wake of reports that it is for sale.

Salmon writes, “Pearson loves to repeat that ‘the FT is a valued and valuable part’ of the company, but there’s a good reason why public, listed companies tend not to own things like sports teams or works of art. For that matter, Pearson is one of very, very few public companies which own newspapers and which don’t have a dual-class share structure giving control of the company to some mogul or family. The buyers might not be doing DCF math, but the sellers do it all the time, and the value of $1 billion to Pearson is vastly greater than the present value of the FT’s future cashflows would ever be.

“The new owner, of course, will want to get $1 billion of value out of his investment, but he won’t be trying to get there by using the FT’s current playbook of constantly raising subscription rates. That, along with its paywall paranoia — the determination with which it attempts to prevent non-subscribers from reading all but the tiniest amount of FT content — means that it is actively repelling the population which is its best chance at future growth and relevance.

“The FT loves to tell advertisers that it reaches lots of very rich and important high-level executives, which is true. Newspapers sell readers to advertisers, and those executives are where the money is right now. But they’re not where the money will be, in say a decade’s time. When Rupert Murdoch bought the WSJ, I expected him to turn it into a formidable global brand, especially in China; instead, he invested millions in a new section devoted to New York City. It turns out that Murdoch’s desire to compete with and beat the NYT is greater than his desire to invest in an ultra-long-term project which would probably only pay off after he was dead.

“But there are two huge global news companies which are desperate to make inroads in China and other fast-growing countries: they have an enormous strategic interest in reaching the next generation of global technocrats, and they know they can’t do that with terminals alone. They need something which can travel more easily, something with a first-rate reputation: a foot in the door, if you will. To Bloomberg and Thomson Reuters, the value of the FT is not in its profitability, but rather in its reach and its reputation. It’s one of the very few possible ways of reaching the people who will be running the world in 10 or 20 or 30 years’ time — no matter what country they currently live in.”

Read more here.