Are Schibsted's corporate bylaws dragging down its share price?
March 11, 2008
Now, here's an interesting contrarian take on what's bringing down Schibsted's share price.
To say that these are not the jolliest of times for media shares would be an understatement. Schibsted, the Norwegian based media group, much praised internationally for its successful online transition, has seen its share price halved since October - from roughly 300 NOK to roughly 150 NOK.
The market consensus seems to be that, like other media companies, it is being punished for its heavy reliance on the mood swings in the advertisement market, and the market is growing doubtful of the viability of its international expansion - in particular its freesheet business. In short: the share is considered high risk as well as cyclical.
But here's another take on this scenario, investor Michael Roessler over at Key Event suggests that "the reason for the persistent market discount to intrinsic value" is that Schibsted's corporate bylaws are written such that majority ownership is not at the 50.01pc level, but at 75.01pc.
In other words, he is saying that The Tinius Trust, created to safeguard the editorial freedom of Schibsted's newspapers, is dragging down the share price.
Admittedly, this suggestion is based on a research report he did in 2005, and by now many of his findings are outdated – Schibsted has largely moved out of TV, while consolidating online, in classifieds and newspapers and expanding in the free newspaper segment – but the corporate bylaws remain. Though Tinius himself passed away in November, it was his hope that these bylaws would be his lasting legacy - and as long as clever inheritance lawyers do not manage tamper with them, it will be, so this still makes for interesting reading (for the full report, follow the link in Mr Roessler's post):
History, Dear Watson
Schibsted in Norway, like Bonnier in Sweden, is a modern implementation of a very old, family-run business. The Schibsted’s have owned the Aftenposten newspaper for 145 years, since 1860.
Mr. Tinius Nagell-Erichson, a member of a branch of the original family, used the cash flow from Aftenposten to buy other papers like Verdens Gang in the 1960’s and was instrumental in introducing the tabloid version.
Mr. Tinius Nagell-Erichson was further instrumental in transforming the private, family-owned business into a holding corporation. Other family members sold their shares in an IPO, but Tinius Nagell-Erichson did not sell.
In what I think he would term an act of duty, he cemented his dominance in the Norwegian national media flag-ship with a 26.1pc ownership and cleverly written bylaws.
At Schibsted, a shareholder majority is not everything above 50pc, but rather everything above 75pc. This corresponds nicely to Nagell-Erichson’s 26.1pc ownership. There is no majority without his shares.
Sell side analysts attribute Schibsted’s lower valuation relative to comparables to “higher perceived risk.” Specifically, analysts cite Schibsted’s “bold acquisitions” as “risky and aggressive.” Danske Securities, for example, argues that a major reason for the,
“persistently low valuation” of Schibsted is the, “higher risk perceived by investors. Schibsted’s relatively high earnings volatility and the stock’s much higher trading volatility are just two examples of this. Schibsted probably confidently expects its valuation to improve markedly and move closer in line with peers’.” – Henrik Schultz, Danske, December 22, 2004.
I believe that this argument is a complete mischaracterization of Schibsted and utterly misses the role of history in Schibsted’s corporate structure today.
First, there is nothing bold or aggressive in the character of Schibsted’s management. Acquisitions at Schibsted are not primarily a proactive, innovative strategic vision for developing the company into the future, but rather a reactive strategy in defense of the threatened markets and their revenues. Schibsted seems to back into its acquisitions when it is motivated by fear...
Even the latest attempt to acquire Alma Media is reaction to threatened ad revenue... Schibsted’s acquisition strategy is not aggressive. It is defensive...
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