Axel Springer pulls out of race for Rzeczpospolita

No Polish partnership between Mecom and Axel Springer.

After months of speculations the German newspaper giant was vying for both Rzeczpospolita and Mecom Poland, it emerged yesterday that Axel Springer had not submitted a bid for the Polish state's 49 pc stake in Rzeczpospolita - where Mecom is the majority owner.

Czech publisher Respekt Media, who along with Springer was reported to be one of four bidders provided access to undertake due diligence tests, also abstained from submitting a bid, which means only two companies, United Business Entertainment (Zjednoczone Przedsiebiorstwa Rozrywkowe) and Platforma Mediowa Point Group, are still competing for the stake. The Polish Treasury is expected to announce its decision next week according to tvn24.pl (and Google Translate). A source at Axel Springer told Reuters the German group now had no interest in Rzeczpospolita.

Predictably, running a media company together with the Polish government has been a rather troublesome affair for Mecom, as it was for the previous owner Orkla Media. Among other things the former Communist state has accused the company, run by David Montgomery who was renowned for his brutal cost-cutting regime while at The Mirror, of not delivering good enough financial results. As Mecom's recent agreements to sell its German and Western Norwegian divisions are not enough in their own right to solve the  company's covenant issues, many have wagered that its Polish arm, made up of Media Regionale and the 51pc stake in Rzeczpospolita, will go next.

However, despite Montgomery pledging long term commitment to what's left of its Norwegian arm, Edda Media, when talking to employee representatives in Oslo early this month, industry sources keep telling us Mecom is actively pursuing further sales in Norway. Now, not long ago, when Norwegian media was abuzz with speculations about A-pressen or others acquiring Edda, a newswire reporter asserted all leaks media had received during this... eh... courtship had been from the prospective buyers, and, obviously, all parties have their agendas. In short, for those who emailed me asking about that Oslo meeting: I suggested upfront, based on previous such meetings, it would be interesting and confrontational - I was wrong about confrontational, both sides denied it had been, but it was certainly interesting....

Update 21-03/09, 11:50 CET: do check Krzysztof Urbanowicz' post which contains additional information and analysis, here with Google Translate if your Polish is as bad as mine.

Comments

[Dan]

Hi Kristine

Mecom's shareprice has been rocketing this week - up another 33% today - with the UK investor community anticipating positive news on their covenant tests with the banks on 31 March.

Most seem to anticipate a sale of the Polish interests, as you write. Nobody, has really spoken about them selling off their other Norwegian assets. Do you think this is likely?

Great blog btw.

Cheers,

[Kristine]

From a strategic point of view I'd sell Poland over Norway, but that would also depend on what's possible to sell for a good price right now:

"We’ve reached the point at which struggling media groups concede the need to sell non-core assets for what they can, when they can," to quote Peter Kirwan - http://blogs.pressgazette.co.uk/mediamoney/2009/02/09/the-financial-reporting-season-a-moment-of-truth-at-recession-central/

But, seriously, from a business point of view - qua revenue - selling Norway over Poland would be a desperate move...

[Dan]

Thanks for that... I expected the withdrawal of Springer's interest in buying the Polish paper to be regarded as a blow. One would have assumed they were the most likely takers for both the govt and Mecom stakes. That leaves 2 or 3 other potential bidders for the govt 49% stake. Do you think it's fair to assume that they would also want to acquire Mecom's 51%?

Is Montgomery generally badly regarded by the Norwegian media community? I can imagine his hatchetman approach doesn't sit well....

[Kristine]

I've updated the post with a link to Urba's thoughts on this, a man who know the Polish media landscape much better than me. He forsees that the current market gloom also will hit Polish media hard, and it's fair to ask who would want to be media owners at all in such times, but it's a brilliant time to pick up a bargain of course.

It's been my impression all along that Axel Springer has just been waiting for Mecom to fall apart so they could pick up attractive assets for a bargain, but I've had no dealings with anyone in the company so that's just an impression.

Before Christmas my sources claimed there had no concrete negotiations, or certainly not as advanced, as in Norway, about selling Poland, but that's probably changed by now. Mecom's stratgey, like any half sensible company, has always been to be a majority owner or not all all - so selling their minority stake in AD Nieuwsmedia in The Netherlands - as Mecom has been positioning for for a long time, but first deal fell thru due to funding problems on the prospective buyer's part - is more in line with this strategy than selling their majority stake in Poland.

But Mecom's facing a major funding shortfall and will be in breach of its covenants even with the disposals of Germany and Western Norway, so it needs to sell something, anything, and it will probably have to be core assets to cover the shortfall - it's not like the advertisement market looks like it will improve any time soon.

As for your last question: as a journalist yourself you're probably familar with his reputation from his days at The Mirror and that reputation has proceeded him everywhere. The unions hate him more feverently than any other media proprietor, most of the journalists I talk to would rather have a new owner, but some of his editors and tech staff will defend him in private even after a few beers;-)