by Dr John Buchanan, Research Associate at the Centre for Business Research
Nikkei’s purchase of FT Group for £844 million may have a happy ending for all concerned. Pearson has disposed of an unwanted asset for an unexpectedly good price, which it can now reinvest, Nikkei’s management has expressed its satisfaction in its acquisition, and the FT’s journalistic independence may blossom further in the hands of a shareholder whose chairman admits that he cannot read it easily.
No one can say yet how these situations will develop. But in the present there are two interesting aspects to this deal: firstly, the surprising lack of clarity in what the participants are saying about their motives and, secondly, what it shows about two different approaches to capitalism.
Lack of clarity is something that one has come to expect in corporate announcements, to the point that many are automatically reinterpreted by their hearers. Pearson’s management has reversed earlier policy to hold onto FT Group, apparently because it feels ill-equipped to own a newspaper in an age of emergent new media delivery mechanisms and sees no logical link with its core educational businesses. In fact most people would consider these two businesses to have much in common, not least from a shared need to focus on new delivery mechanisms. It would have been more satisfying if Pearson’s CEO had said he wanted rid of an asset whose need for independence made it little better than a portfolio investment and had accepted a good offer in order to reinvest in educational businesses where he could exercise full managerial control.
Nikkei’s motives are even less clear. Nikkei, with its subsidiary publications, provides meticulous coverage of the Japanese business market, using enviable connections in the business and political communities. It reports facts and has access to many senior figures who are happy to supply quotations. It is willing to take a stance at times but generally avoids controversy: in many ways it is the opposite of the FT, whose coverage is wider but necessarily thinner because its attraction to readers is its extensive global coverage and its willingness to analyse and foment debate. It is hard to understand how Nikkei’s CEO could say that both newspapers share the same journalistic values. When Nikkei agreed to buy the FT, an almanac agreed to buy a debating club.
There are further uncertainties too. Nikkei, according to its CEO, did not carry out this acquisition to increase profit but to enhance the value of journalism. But is such an altruistic motive a sustainable way to manage a business in the long term? Indeed, is it wise to exhaust cash reserves and assume debts to buy a business that operates in a different language, serving a readership that differs from the Japanese market that Nikkei has cultivated so assiduously hitherto? Nikkei’s presumed intention not to interfere in editorial policy at the FT makes this an expensive portfolio investment which, at best, may generate a few contingent benefits. One wonders whether this money could not have been used better to improve Nikkei itself and, perhaps more unkindly, whether the FT acquisition simply displays a lack of strategic vision towards Nikkei’s main businesses. Parallels come to mind with Nomura Securities’ efforts to supercharge their overseas business by acquiring Lehman Brothers’ European operations in 2008: as often happens, working with people who do things that your embedded managerial resources do not fully understand can prove difficult.
Finally, this deal casts interesting light upon two very different approaches to capitalism. Nikkei committed itself at short notice with a display of senior management autonomy that would be unusual in the UK but which is much more common in Japan: the focus, as explained by Nikkei, is the business itself, not any immediate returns. Nikkei’s shareholding structure, with strong employee interests, makes it unusual but this is still a good demonstration of how Japanese senior management is permitted great discretion as long as the company’s performance is reasonable. Moreover, the focus on the company as something of intrinsic value, not just as a commodity for the benefit of shareholders, is reflected in the comments by Nikkei’s management about the attractiveness of the FT as more than just a source of profit; this same focus means that it is most unlikely that they would have accepted an equally full offer for any part of the Nikkei group.
In contrast, Pearson’s decision to sell has hardly been questioned. In the UK, if the price is right, the deal must be right. In theory everything is for sale at the appropriate price and the main concern is not the business or its future but its present value to shareholders. The FT has supported this style of shareholder capitalism for many years and would find it difficult to query it now.
John Buchanan is co-author of Hedge Fund Activism in Japan: The Limits of Shareholder Primacy, with Simon Deakin and Dominic Heesang Chai, and published by Cambridge University Press. He is a Research Associate at the Centre for Business Research, University of Cambridge.