How to Take SPAC Money and Go Private

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From electric carmakers to space tourism to online learning firms, special-purpose acquisition companies have provided an easy route to the public markets for businesses with, generously, a long path to profitability. The SPAC boom is now also smoothing the way for a legacy media company – Britain’s biggest newspaper – to leave the public markets through a wily feat of financial engineering.

Daily Mail and General Trust Plc said on Monday that the Rothermere family, which founded the right-of-center newspaper 125 years ago, intends to acquire the 64% of the company it doesn’t already own. The offer ostensibly values DMGT’s equity at some 2.9 billion pounds ($4 billion), or a 38% premium to its average share price over the past year — not bad going for a company whose core newspaper business is in long-term decline. Yet it may undervalue the Daily Mail parent.

Much of that valuation comes from DMGT’s 16% stake in Cazoo Ltd., the online used car dealership that’s in the process of being acquired by a New York-listed SPAC. The startup’s mooted $7 billion valuation requires something of a leap of faith.

The Rothermeres are eking the most out of DMGT by thinking like a private equity firm, and using its range of existing assets to fund the takeover. The company has long been more than just a newspaper publisher, with businesses spanning events, insurance data and, significantly, venture capital.

The venture arm’s investment in Cazoo is now valued at about 1 billion pounds, and the holding will be distributed to DMGT’s shareholders. They’ll get a further 1.4 billion pounds in the form of a special dividend, funded by the sale of the education technology business earlier this year and a planned sale of the insurance division.

And because the Rothermere family is the biggest shareholder, it will receive the biggest chunk of the cash distribution. That influx means that Jonathan Harmsworth, the current Lord Rothermere and DMGT’s chairman, doesn’t need any external funding for the deal. The planned 251 pence-per-share offer equates to just 367 million pounds for the part of the company that the family doesn’t already own. The special dividend alone will send the Rothermeres 502 million pounds, leaving them with cash to spare.

Coming as it does just a month after Rupert Murdoch’s News Corp. wrote down the value of U.K. tabloid rival the Sun to zero, that might seem like investors are getting a good price. But the prospects for old media companies are starting to brighten as the industry pivots toward online paywalls. For all of DMGT’s success in attracting a web audience with the celebrity content-focused MailOnline, the website still makes just 144 million pounds a year in revenue. It’s now experimenting with a paywall for content that originates in the newspaper.

The trailblazer for that approach is of course the New York Times Co., which has parlayed its successful digital paywall strategy into a market capitalization that represents 37 times its expected earnings this year. The Rothermere offer likely values the rump Mail business at less than 20 times its expected earnings. For sure, the Mail is a riskier bet, but if it can get the approach right, there is considerable upside. Because the family is both the biggest investor and controls all the voting stock, a counterbid is all but impossible.

It’s a long time since newspaper ownership was a license to print money. But the rest of the shareholders might nonetheless be left feeling a little hard done by.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

©2021 Bloomberg L.P.

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