01 May, 2007

Consolidation Threat to Venerable Hong Kong Newspaper

A Malaysian tycoon engineers a questionable merger of assets into a Hong Kong newspaper group

Tiong Hiew King (張曉卿), previously best known as a Malaysian timber tycoon, is planning to create “one of the largest global Chinese language media platforms through a complex merger between listed companies he controls in Malaysia and Hong Kong.

As matters stand, however, the deal looks far more like a way of offloading his ailing Malaysian media interests into the Hong Kong company, raising questions over whether the merged conglomerate will finally kill off the reputation of the Hong Kong-based Ming Pao (明報) , once regarded as the gold standard of Chinese newspapers.

Ming Pao is the flagship of the Hong Kong-listed Mingpao Enterprise Corp., which spun off its magazine holdings into a smaller listed entity known as One Media Group. The Malaysian companies joining the merger are Sin Chew, which owns Sin Chew Daily, the largest Chinese language newspaper in Malaysia and the money-losing Nanyang Press (南洋報業股份) , which publishes both newspapers and magazines.

When Tiong took over the Nanyang group last year it gave him a near monopoly on Malaysia’s Chinese-language newspapers and sparked concerns over how this dominant position would be used, given the tycoon’s close connections to the Malaysian Chinese Association, the second-biggest partner in Malaysia’s governing coalition.

Meanwhile in Hong Kong, Tiong Hiew King had effectively rescued Ming Pao from the failed businessman Yu Pun-hoi in 1995. It had been founded and subsequently run by Louis Cha, one of the most famous living Chinese authors and a talented editor who made Ming Pao into Hong Kong’s leading quality newspaper. It went into sharp decline under Yu but has revived slightly under Tiong’s ownership. Louis Cha remains a shareholder but is far from the driving force.

Now all these media holdings are due to be merged into a single entity under the Ming Pao umbrella, with listings on the Hong Kong and Kuala Lumpur stock exchanges. Furthermore the group is interested in spreading its tentacles into the electronic media. In January Rita Sim, an executive director of Sin Chew, told a media briefing that the company was eyeing radio and television acquisitions. This aspiration is not being mentioned in the current merger plan but rumors persist of possible targets, including TVB, Hong Kong’s leading television broadcaster currently controlled by the 100-year old Run Run Shaw.

Tiong’s real intentions are not clear despite some talk of his aspiration to become an Asian version of Rupert Murdoch, a vision hardly likely to be welcomed by those familiar with Murdoch’s mode of operation and track record of diminishing the editorial quality of practically every publication that has fallen under his control.

Meanwhile the realities of the Malaysian Chinese language market, particularly for newspapers, are all too evident. There is a shrinking base of Chinese language readers and the likelihood of this accelerating as literacy in Chinese is in rapid decline in a country committed to policies enhancing the Malay language.

The impact of this shift away from Chinese is already evident in the profitability of Tiong’s two newspaper groups. Nanyang is losing money RM6.31 million in the red last year, following on from a profit in the previous year. Sin Chew turned in a profit of close to RM54 million last year, compared with almost RM60 million the year before.

Ming Pao on the other hand is increasingly profitable, albeit not entirely as a result of its publishing activities. The company recorded a HK$68.5 million profit last year, compared with HK$43.3 million in the previous year and a loss in 2002.

Maybe because Ming Pao is becoming more profitable its board brought forward a proposal in February for capital reorganization that would allow the company to distribute more of its earnings to shareholders.

The main beneficiary of this move is Tiong, who controls 62 percent of Ming Pao’s shares. He has significantly smaller holdings in Sin Chew (49 per cent) and Nanyang (32.5 per cent). If the merger goes through he will hold almost 55 per cent of the shares in the combined company.

But what’s in it for the minority shareholders? On the surface it looks very good for shareholders in the Malaysian companies, whose shares are valued at a healthy premium to the price they were trading at prior to the announcement of the merger plan on April 23. Sin Chew shares are valued at RM4, while Nanyang shares are given a nominal value of RM4.40, which represents a premium of up to 59 per cent on recent historical prices but a more modest premium on recent trading levels which reflect the fact that this merger was talked about before it was formally proposed.

Ming Pao shares meanwhile are being valued at HK$2.70. Compared to HK$1.95 prior to the merger announcement, this represents a premium of almost 28 percent but Ming Pao shares had already been rising in the weeks prior to the announcement, which means that shareholders who were on board when the deal was originally mooted in January could see the value of their holdings double.

Comparing the value of the three companies is not simple because intangible assets form an important part of the newspaper business but in plain book to price terms, i.e. comparing the share price to the net asset value of the company, Ming Pao shareholders seem to have got the raw end of the deal because the proposed price for new shares equates to a multiple of only 1.7 on their company’s assets, compared with 3.8 for Sin Chew and 2.3 for Nanyang.

There is much talk of making use of the synergies created by this merger, particularly at the production end where the existing 12 production plants are almost certain to be rationalized. But what of the newspaper’s content? Both Ming Pao and Nanyang hold a special place in Chinese newspaper publishing history. Nanyang is now in serious decline and well past its golden age.

Ming Pao’s situation is more complex. It no longer occupies the special place it once held among Hong Kong newspapers but, to be fair to its current owners, it has crawled back from the lows reached during Yu Pun-hoi’s stewardship. Its Malaysian counterparts are seen as having moved towards a pro-government position, while Ming Pao is edging in that direction, although it has not moved as far as some other Hong Kong publications toeing whatever line emanates from Beijing.

Under Tiong’s ownership, magazines published by the group have made a far more determined effort to enter the Chinese market, with all the editorial compromises that this entails. It is hard to find evidence that Tiong is committed to either editorial excellence or journalistic integrity. In these circumstances the creation of a bigger block of newspapers under a single umbrella is not raising high hopes.

As for the company’s minority shareholders, they may be asking whether this merger is really in their interests, even though the extensive re-jigging of their shareholdings is producing theoretical profits, at least in the short term. In the longer term they are tied into a declining newspaper market.

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Stephen Vines. Asia Sentinel.

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