Despite acting chief executive Alun Cathcart’s bold assertion to the contrary, EMAP is likely to end up in the hands of a demolition man.
The new boss will have to carve up the beleaguered radio-to-magazines business after the ousting of group chief executive Tom Moloney last week paved the way for a break-up.
This weeks’s annual results make the pressures bearing down on him quite clear. EMAP pre-tax profits in the year ending March 31 dropped by 13% to £193m, with total revenue sliding 1% to £1.15bn year on year. The sudden departure of the low-profile Moloney after 26 years with the media giant, who spent four years at the helm, was therefore hardly surprising as the company has for a long time been plagued by weak advertising, a declining share of radio audiences, and falling circulations at its consumer magazines.
Moloney’s perceived lack of leadership and the slow pace of change at the media company are said to have precipitated his exit. “The kiss of death was appointing the Boston Consulting Group to conduct a strategic review of the ailing business,” says one analyst, who adds that the move to pay huge sums of investors’ money to an outsider to examine the company’s portfolio and strategy made it clear that Moloney had “run out of ideas”.
Lacking a strategy
He later also hired Spectrum Strategy Consultants to look at the radio divisions, and later still McKinsey to help launch a series of online products to boost its consumer magazine brands. More than 400 jobs are thought to have been cut as a result of the restructure recommended by the consultants. City analysts regard Moloney’s departure as an indication that EMAP is ripe for a demerger and could become the latest conglomerate to stir interest among private equity operators keen on taking on some of its various divisions.
“This is likely to ignite speculation about the wider future of EMAP, which has been perceived as lacking a strategy for the past two years, and it will refocus attention on the sum of the parts,” says Paul Sullivan, an analyst at Merrill Lynch, in a note to clients.
The business includes more than 80 consumer magazines such as Heat and FHM; 18 radio stations including Kiss and London Magic 105.4FM – both of which are its weakest performers – and the profitable business-to-business publications and exhibitions unit. Numis Securities analyst Lorna Tilbian, who also sees value from a demerger, adds/ “The market has been quite buoyant and I would have expected EMAP to be a part of this rally. But it has been held back by serious management failures, like being unable to spot trends, such as the failing French business or the falling revenues at its NHS recruitment titles affected by the cut in government spending on recruitment.”
EMAP France, which has been sold, saw its TV listings magazines flounder due to intense competition. However, a former EMAP veteran says selling “France” might be a decision it lives to regret, as it will not be easy for the company to revive its international ambitions later.
For a man who has been a senior executive at EMAP for so long, Moloney’s presence on the media scene appears to have been extremely low-profile. As one insider points out: “The problem is that not only did he surround himself with average talent, but he also failed to put any of the successes under his own banner.”
Share price rises
He points to the winning formula of the glossy weekly Grazia, which was never orchestrated as a Moloney success story. Under his stewardship, EMAP also bought the profitable Cannes Advertising Festival for £52.4m in 2004.
He is remembered as the man who ran the American arm Petersen that nearly brought the company down, although it wasn’t his decision to buy it. The debacle cost his predecessor Kevin Hand, who now runs Hachette Filipacchi UK, his job at the time. Under Moloney, EMAP also lost the high profile radio chief Tim Schoonmaker, who is thought to have been overlooked for the chief executive’s position.
Moloney’s departure boosted the shares to 881p, valuing EMAP at £1.9bn. He has been replaced on an interim basis by EMAP chairman Alun Cathcart.
EMAP says Moloney is resigning “by mutual consent”. Cathcart says: “Tom has made a significant contribution to the company’s development and leaves EMAP positioned for growth in the new digital era.” Moloney says: “EMAP is a company with many talented people, the business is moving steadily into digital and I am confident that it has a very bright future.”
Cathcart, former chairman of Rank when it sold off its holiday and leisure business to focus on betting, is seen by analysts as robust and “not cowardly” like Moloney. One media buyer says: “Moloney had been with the company for too long and became very emotionally attached to the business, and therefore had to get help from consultants to make dramatic long-term changes.”
However, during his time at EMAP, Moloney did shut down failing businesses like the long-running pop music title Smash Hits, girls’ magazine Sneak, and the US version of FHM.
Rival publishers say that Moloney paid the price of heading a public company that has failed to take a long-term view of the downturn in the advertising market caused by economic uncertainty and a migration of advertising online. “This is a trend that has hit all of us, but we can take a longer term view than be under the constant pressure of producing instant results because we are not a listed company,” says one rival publisher. Meanwhile, the City is already lining up suitable bidders for the business. Tilbian tips a number of possibilities. Kevin Hand, backed by Hachette’s French owners Lagadere or Schoonmaker, a partner at DLJ merchant bank owned by Credit Suisse. Then there’s Colin Morrison, the chief executive at ACP-NatMag, which publishes weekly titles Best, Real People and Reveal. He is also a non-executive director of Centaur Media. They all might try and mount a bid for the EMAP consumer business.
Who is interested?
She also thinks that Trinity Mirror chief Sly Bailey might want to “do another IPC”. Bailey, who joined Trinity Mirror in 2003, has been trying to reverse the advertising slump at the group, and observers say that after four years and the sale of the Racing Post and a slew of Trinity’s regional papers, the time could just be right for her to return to the world of glossies. As the former chief executive at IPC, she sold the magazine business to Time Warner for £1.15bn in the biggest transatlantic media deal to date.
Radio buyers say that contenders for radio assets could include Canadian media giant CanWest, desperate to move aggressively into the UK market, or maybe GCap Media. The business-to-business publications, which include Nursing Times, are likely to attract attention from the likes of United Business Media, the business information group behind PR Newswire.
EMAP has long been seen as a takeover target and this might be the perfect opportunity for predators circling around EMAP to swoop on their prey if the share price sags.