Watching Emap’s share price during recent years was the stockmarket equivalent of watching paint dry. Despite investing more than £800m (€1 billion) in acquisitions since 2003 and raising a similar amount through disposals, the UK media group’s share price stuck stubbornly around £8. Last summer, the board took a huge step to give it the ultimate shake-up, by putting each of the group’s three businesses on the block. For Ian Griffiths, Emap’s finance director since 2005, it was a career-defining experience. He helped oversee a sprawling strategic review at a time when Emap was without a CEO, and organised a buyout of its pension funds to ensure that the acquirer wouldn’t have to deal with the deficit. All this while the credit crunch loomed and consumer markets looked decidedly shaky. (See “Take It Away,” February 2008.)
The hard work paid off. In December Emap sold its radio and consumer-magazine businesses to Germany’s Bauer Publishing for £1.14 billion. Two weeks later it announced the sale of its business-to-business (B2B) division and Emap PLC to Guardian Media Group (GMG) and Apax Partners (a private-equity firm) for £9.31 per share, including a dividend of about £4.60. “We set out to create value for shareholders and we’ve done that,” Griffiths says today.
Despite the pressures, the finance chief says he enjoyed the process. As the group’s head office empties and Griffiths prepares for his final weeks as an Emap executive, he tells CFO Europe what he learned during the break-up and why he wants to continue working for a public company.
You say Emap’s share price was “stuck” for about seven years. What was the problem?
There were always challenges holding back the group’s overall performance, whether radio or B2B recruitment was having a tough time or consumer launches weren’t working. It was a media conglomerate and it was hard to say what the compelling investment story was for the business, which held back the share price.
Our chief executive, Tom Moloney, left the organisation in May . We announced we would recruit a replacement, but also agreed it was an appropriate time to look at each of the businesses’ performance again, because some of the areas we operated in were tough, particularly consumer markets. We needed an honest appraisal of what the businesses could deliver over the next three to five years. And when we did that, we believed there was a premium not reflected in the share price.
What were the alternatives to breaking up the group?
One was to stay as we were and appoint a chief executive. The others were variations on demergers — would there be a re-rating of the B2B and consumer businesses if they were separated? The only way to test the value of an asset is to see how much someone will pay for it, so the main work was preparing the business to be sold. We went through weeks of vendor due diligence, led by Ernst & Young, which asked all the questions that potential acquirers would. So once we engaged with potential buyers in late August, we could give them the information they needed.
How much did the credit crunch threaten the process?
We announced the review on July 27th and that week things started getting difficult in the credit markets. People were saying, “It will all be alright by the end of August. Don’t worry.” But we were worried. We organised staple finance, which means our banks said how much money they were prepared to provide as a debt package for the businesses we were selling. For this process, that became a significant event because it gave comfort to the board and everyone else that finance was available. No one dropped out because of funding.
When you announced the sale to Bauer in December, you said you’d no longer sell the B2B business. Why?
At that stage, the offers on the table for B2B didn’t meet our view of its value. We said B2B would stand alone as a public company. And it could have survived. But I was surprised that people came back [with new offers] so quickly. Apax and GMG came back within two weeks with a significantly improved offer, one that we thought we were duty-bound to take to shareholders.
What happened to the share price?
During the review the share price went up to around £9 and stayed there. In the same period our media peers were re-rated and fell by about 25%. But when we said B2B was going to stay public, it surprised people. And in a nervous equities market, surprises are not well received. We saw the share price fall to about £7.30. That was very different from the warm reception when we announced the [Apax/GMG] sale on December 21st. That was seen as a good price against a re-rated sector and tight credit market. People have speculated on what the share price would be had we not done these deals. [Would it] be higher than £4 or £5? It’s academic. It wouldn’t be £9.
What lessons have you learned from this?
This may sound trite, but you’re only as good as the people around you. We had high-quality people at board level and in particular here in my finance and corporate teams. I learned a lot about myself as well, because not only were my teams under pressure but I was too. Without a chief executive, I was seen as the impartial executive director [because the other executives were linked to specific Emap businesses].
With the PLC gone and the board moving on, what will you do next?
I think the next move for me is another PLC role. I’ve said that to a few people and they’ve said, “Most PLC finance directors are running away from the public markets, they want to work in private equity.” But the shareholder side, the City side, operating at a corporate level, operating with a chief exec as a true partner to help set the strategy and deliver on that — I find that really exciting. I’d like to do it again.