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December 3 2007
SCMP Parent May Be Returned to Private Hands
By Jonathan Cheng
The Wall Street Journal
(c) 2007, Dow Jones & Company, Inc.
HONG KONG -- A move by the South China Morning Post's controlling shareholders could put the Post, one of Asia's leading English-language newspapers, in private hands for the first time in nearly two decades, amid difficult conditions for the local industry and a slumping share price.
The shareholders have triggered a mandatory offer for the Post's parent company, SCMP Group Ltd. A spokeswoman for SCMP said Thursday the company had received notice of the offer from Kerry Media Ltd., a 35%-stakeholder in SCMP that is controlled by Kerry Group Ltd. and the family of its billionaire chairman, Robert Kuok.
"We can't comment on the intention for privatization, because that's Kerry Media's decision," a spokeswoman for SCMP said Friday. "Regardless of the general offer, there will be no change in the editorial operations of the newspaper."
Neither Kerry Media nor Kerry Group could be reached to comment.
In 1986, News Corp. acquired a large stake in SCMP and took the company private, then relisted it in 1990. News Corp. sold its stake in SCMP to Kerry Group three years later.
The Post has enjoyed robust advertising revenue in recent years, thanks to a booming economy that has bolstered spending from luxury advertisers.
But more recently, the local newspaper industry has been hurt by the rise of the Internet and changing media-consumption habits. Though the Post has been largely immune from the price wars that have ravaged Chinese-language dailies, it faces the prospect of flattening English-language readership in the former British colony.
The biggest blow may have been a move by regulators this year to stop requiring companies to run public notices in newspapers, taking away a significant source of revenue for the industry -- as much as 20% of the Post's advertising revenue, analysts said. The policy change prompted the Post's main rival, the Standard, to switch to a free-distribution model this summer.
In recent months, SCMP's stock price has fallen about 26% from a high of 3.39 Hong Kong dollars (43 U.S. cents) in June. Prior to the suspension of trading on Thursday, caused by the triggering of the mandatory share offer, the stock closed at HK$2.50, up 4.6% that day on expectations of a move by Kerry.
An offer for the Post became mandatory when Kerry Media and Kerry Group collectively increased their stakes in SCMP by more than 2% over the past 12 months.
Given the lack of investor excitement about the industry's future and the lagging share price, sector analysts described Kerry's move to snap up outstanding shares of SCMP as well-timed. Taking SCMP Group private would allow the Kuoks to maintain control of a newspaper that still retains considerable cachet from its heyday, without the short-term financial scrutiny of shareholders.
Vivek Couto, an analyst with Media Partners Asia, said taking SCMP private could help "gear it up for a more viable future" by allowing the company to explore new avenues, such as bolstering its property investment and expanding into new media. In addition to its publishing concerns, which include magazines, SCMP owns real estate in Hong Kong.
In a research note to investors, analyst Silvia Ko of BNP Paribas Securities (Asia) said the company is undervalued, making privatization a logical step.
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