Axel Springer gets top euros for dead trees

It’s easy to see why Germany’s largest publisher wanted to sell a third of a declining domestic print business. It speeds up the move to digital. It’s harder to know why a buyer was willing to pay 920 mln euros, 9.7 times 2012 EBITDA. Springer shareholders should be happy.

Germany’s largest publisher has just shown that it is still possible to make lots of money with perennially declining newspapers and magazines – by flogging them at an inflated price.

Axel Springer AG has agreed to sell about a third of its domestic print business to Funke Medien, the country’s third-largest newspaper group by circulation. Funke will pay 920 million euros for two papers as well as some TV and women’s magazines.

The price – 9.7 times 2012 earnings before interest, depreciation and amortisation – is high by current standards, especially considering that Springer said in June that it expects a “significant” decline in print EBITDA for 2013. According to Starmine data, listed newspaper publishers trade at 3 to 7 times EBITDA.

Springer gets rid of two of its least profitable newspapers, Berliner Morgenpost and Hamburger Abendblatt. They earned EBITDA margins of about 11 percent in 2012. Margins at the publisher’s other newspapers, Germany’s leading tabloid Bild and national daily Die Welt, are more than twice as high.

From Springer’s perspective, the deal makes excellent sense. It will use the proceeds for further digital expansion. After several years of heavy investments in Internet start-ups, digital media generated 40 percent of revenue and 47 percent of EBITDA in the first quarter of 2013.

The sale is also strikingly unsentimental. Springer’s Chairwoman Friede Springer, the widow of the company’s founder, and Matthias Doepfner, the chief executive, are getting rid of Hoerzu, a TV guide which started the Springer empire in 1946.

The mystery is why Funke will pay so much for a business in decline. The Essen-based group has a reputation of ruthlessly cutting costs at its regional newspapers. Earlier this year, it made headlines by sacking all the journalists at its Dortmund-based Westfaelische Rundschau, which now simply reprints articles from other Funke papers and local rivals.

Springer’s shareholders celebrated the deal, pushing the company’s share price up by 16 percent on Thursday afternoon. Journalists and readers of the papers changing hands will be much less cheerful.

This article was initially  published as a Reuters Breakingviews comment on 25 July 2013.

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