NIP/TUCK TRAUMAS, screams the blurb on the front cover of the current issue of
Closer, the women’s magazine. The phrase could equally well apply to Emap,
the media conglomerate that publishes the weekly title.
In the two months since it parted company with its chief executive, Tom
Moloney, Emap has been carrying out all manner of minor corporate surgery,
selling off various smaller businesses. But the City wants drastic action.
On Friday, investors and analysts got their wish as the chairman, Alun
Cathcart, filling in as chief executive until a replacement for Moloney can
be found, announced that the structure of the whole company would be
reviewed. This could lead to a £2 billion break-up of the group. The search
for a new boss will continue, but soon there may not be a company left to
run.
The move was welcomed by the City, which marked the shares up 12%. “The prices
they have been achieving for the businesses they exited are quite good,”
said one media analyst. “They should keep up the good work.”
The fundamental problem with Emap is that nobody has been able to explain
satisfactorily how the various parts of its empire click. The company
started out as a publisher of local newspapers, but now spans radio,
magazines, and exhibitions and conferences.
“I can’t see a sensible business out of the, admittedly great, collection of
disparate media brands they have,” noted an executive at a rival media
company.
Despite the criticical attitude in much of the media and the City, Emap’s
board has traditionally fought hard to show there is value in maintaining
its various assets under the same umbrella, albeit one that made profits
last year of £193m on sales of £1 billion. For example, it announced plans
recently to launch digital radio stations based on its successful magazines
Closer and Heat.
And as recently as its annual results presentation in May, Cathcart maintained
he would not sanction a break-up strategy. He told analysts that “what we’re
doing is ignoring that” because “the numbers don’t work”, a comment
based on two separate reviews carried out respectively last September and in
February.
Something has clearly changed in the few weeks since that meeting to prompt
such a u-turn. Executives from the company declined to comment this weekend
beyond Friday’s statement.
In part, it may be that the board has been encouraged by the decent valuations
it has received for the divisions it has sold in the past few months.
The sale of the Irish radio interests for €200m (£134m) was above market
forecasts, for example. Last Monday’s deal to sell a 50% stake in its
music-television operation to Channel 4 as part of a new joint venture was
also warmly received, generating £28m from a business it had acquired for
£6m. The value of other deals elsewhere in the sector, such as the sale of
the Chrysalis radio business, which includes Heart and LBC, to a new company
called Global Radio Network (GRN) led by Charles Allen, the former ITV boss,
may also have prompted a rethink.
Those factors, allied to the knowledge that the group had received serious
approaches for various parts of the business, gave the board the confidence
to announce its rethink.
Analysts at Numis Securities, the stockbroker, argue that a break-up of the
company could be worth 992p per share, against a closing price on Friday of
858p. “There’s no doubt there’s a lot that could potentially be done,” said
Richard Hitchcock, a media analyst at Numis.
Investors in Emap are not used to such drama. One of the reasons why the board
was unhappy with Moloney was said to be the slow pace at which he was
changing the group.
After four years at the helm, having previously headed the magazine division,
Moloney was too slow to position the group in a way that made it capable of
tackling the changing media landscape. Analysts said he was an excellent
divisional head, but lacked the vision needed to “join up all the pieces”
and make Emap the conglomerate work.
After assuming executive duties, Cathcart has been careful not to make the
same mistake, going through the company like a dose of salts. The
63-year-old has said he wants to execute the strategy “more vigorously” and
is said by those who know him to relish being in charge. When Moloney
resigned, investors were fearful there would be a vacuum at the top of the
company. They need not have worried.
The more immediate concern, as Emap’s financial advisers Citi and Lazard, the
investment banks, embark on their review, is that the group is not left with
orphan assets that nobody wants.
It is understood that of the various approaches and proposals the group has
received that have prompted the review, none is about acquiring the company
in its entirety.
Inquiries have come from a mixture of trade rivals and private-equity
investors, thought to be keen on Emap’s events arm and radio operations. It
is thought the consumer-magazine division holds less appeal.
That reflects the fortunes of those respective businesses. In the
business-to-business division, which includes the events, sales and
operating profits both rose 11% last year. Said one industry source: “That
business is the favourite son. It’s going really well and they’re doing some
great things with it.”
By the same token, at the consumer-magazines division sales dropped 5% and
operating profits 11%. That is where Emap has failed to get a grip on how to
deal with a rapidly evolving market.
The preponderance of naked women available to look at for free on the internet
has put titles such as FHM in a spin. At its peak, FHM was selling more than
600,000 copies per month. Now sales are less than half that.
Some of the group’s specialist magazines are also faring badly, particularly
the motoring-related titles, where advertising has largely shifted to the
internet. Emap has tried to address that – a revamped website for Motorcycle
News has proved a hit – but progress has been patchy.
It is hard to see who would be interested in the consumer magazines. But the
part of Emap that has observers most confused is the radio arm. Industry
executives describe the board as sending out “very mixed signals” – selling
off the Irish stations yet apparently bidding, albeit unsuccessfully, for
part of the Chrysalis radio operations.
Analysts suggest that GRN, which acquired the Chrysalis stations, could be
interested in buying Emap’s Kiss dance-music station, and merging it with
its own, broadly similar Galaxy business.
But the City’s dream deal would be for Emap to sell its radio arm to its
arch-rival GCap Media, owner of Capital, Classic FM and a plethora of
digital-only stations such as Planet Rock.
Emap’s decision to examine a possible break-up is seen by many as bowing to
the inevitable. As one media analyst put it: “It’s a business that has got
to the point where it needs to prove its worth or split itself up. The fact
that they are down one chief executive is slightly backing up that view.”
There are other means of delivering value: some think that the review will not
lead to a sale of any of the divisions but that the company will end up
demerging the business-to-business arm. Now the board has tuned into the
idea of a break-up, the City is unlikely to be happy with anything less.
EMAP EMPIRE
EMAP began life in 1947 as a publisher of local newspapers – the letters in
its name originally stood for East Midlands Allied Press. But these days it
is a far more diverse organisation with interests in radio, television,
magazines and conferences.
It has stayed true to its publishing roots, however, producing more than 50
specialist and consumer magazine titles, including Grazia, Closer,
Motorcycle News, Mojo, FHM and Angling Times.
Some of the titles have been used in other markets. For example, Kerrang now
encomp-asses a heavy-metal magazine, a radio station and a television
channel.
But Emap’s best-known radio stations are Magic, which specialises in easy
listening, and Kiss, an R&B station. It also has a number of regional
stations.
The conferences-and-events division is the best-performing part of the group.
Emap is the No 1 organiser of trade fairs in Britain and stages 400 such
events internationally every year.
