India Economy

Why Nikkei is fancying the pink paper

Rob Cox | Updated on January 24, 2018 Published on July 26, 2015

Wider reach: FT gives Nikkei something smooth to offer the world

Due to shrinking domestic market, Japanese companies are foraying overseas

Lionel Barber, the editor of the Financial Times, might not fancy his pink newspaper for the global elite being compared to Tennessee bourbon. But Nikkei Inc’s super-sized $1.3 billion purchase of the Financial Times is philosophically no different than another major Japanese purchase abroad — booze group Suntory Holdings swallowing Jim Beam for $16 billion. Outside of Japan, deals like these are hard to fathom, mainly because the finances don’t seem to stack up. That’s what allowed Nikkei in the eleventh hour to leapfrog rivals Axel Springer and Bloomberg LP.

More outbound deals

In Tokyo the calculus looks wholly different. In a shrinking domestic market, without a product that travels well internationally, buying the FT — or Beam and Maker’s Mark for that matter — is about securing the somewhat distant future. Hence, a roughly $50 billion blizzard of outbound deals so far this year.

Only part of it can be explained by the storied difference between Japanese long-term planning and the short-term thinking that prevails in Anglo-American capital markets. Even accounting for something in between it is difficult to reconcile the 35 times operating profit the company is paying for a post-growth British media business.

That is, until the inevitable arc of Japan’s future is factored into the equation. Over the next 40 years, the population of the Land of the Rising Sun is forecast to fall by over 30 per cent to about 87 million people, according to the Economist, the weekly paper in which Pearson decided not to sell its 50 per cent stake (perhaps saving that trophy for FT losing bidder Mike Bloomberg). What’s worse, without any change in birth rates or immigration, in a century Japan may have just 43 million inhabitants.

Such demographics are particularly worrying to leading Japanese companies with no obvious route to the global marketplace. It’s hard to conjure up a more perfect specimen for this challenge than Nikkei, which turns 140 in December. As the country’s leading financial print publication by a wide margin, it is fully invested in and exposed to this shrinking market.

Nikkei is totally dominant at home, with three million print readers daily — or more than three times the US penetration rate of the Wall Street Journal. Things won’t get much better from here while Japan shrinks. As it is, revenue looks flat, at around 300 billion yen last year, about the same as 2011. Operating profit was 16.7 billion yen, down 9 per cent from 2013.

Global presence

This quandary might be surmountable for a company with the wherewithal to manufacture products desired abroad, say Toyota’s automobiles. No such luck for Nikkei: There is a finite audience for business and financial news about Japan.

This is where the Financial Times comes in. The FT is a recognizable and prestigious brand wherever money matters. Not only is its content of global significance, it comes in the internet’s lingua franca – English. FT gives Nikkei something smooth and palatable to offer the world over. True, the price is hallucinatory by any generally accepted investment yardstick. The FT’s peers trade at about 12 times adjusted operating income. Even billionaire Jeff Bezos was far less generous when he took control of the Washington Post.

Moreover, there are barely any synergies to soften the blow. Nikkei might help sell a few more FT subscriptions in Tokyo and Osaka. But assuming no change in the FT’s fortunes and a ridiculously low 3 per cent cost of borrowing for the whole lot, Nikkei’s interest payments will eat up all of the London-based newspaper’s operating income. Sums like that could be career-enders for American or European CEOs. Yet among corporations dependent on the Japanese consumer, it’s par for the course. - Reuters

Published on July 26, 2015
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