How the SCMP sale adds up for Kuok and Ma

December 14, 2015 14:34
Robert Kuok Hock Nien is arguably selling the South China Morning Post at a bargain price to Jack Ma. Photos: Baidu, Bloomberg, Reuters

Malaysian tycoon Robert Kuok Hock Nien, who owns the South China Morning Post, once the world’s most profitable newspaper, has yet to recoup his investment after 22 years.

Kuok, 92, is selling the paper and the other media assets of SCMP Group Ltd. (00583.HK) to Alibaba Group Holding Ltd. for HK$2.06 billion (US$266 million), having paid media baron Rupert Murdoch US$375 million (HK$2.92 billion) for a 34.9 per cent stake in 1993.

The property magnate owns Hong Kong’s leading English-language daily through SCMP Group, in which he raised his stake to 74 per cent, primarily through a general offer that totaled HK$1.63 billion, from September 2007 to February 2008.

In other words, Kuok’s total investment in SCMP Group was HK$4.55 billion.

Kuok recouped about half of his investment through dividends he received from 1994 until this year.

Still he is HK$2.2 billion short of recouping all his investment.

The company last traded in February 2013 at a market capitalization of HK$2.76 billion.

However, it is quite likely that Kuok will emerge from the Alibaba deal with a smile, because the SCMP Group, minus its media holdings, is left with five properties -- a Clearwater Bay residential project, two floors at Bank of America Tower, two industrial units in North Point and Yau Tong, and the Leighton Road offices (including a huge wraparound billboard) that are being used by the paper and will be leased to it once the transaction is completed.

These properties are probably worth more than the SCMP itself – based on the HK$1.5 billion Fosun International Ltd. (00656.HK) paid for the Clearwater Bay project (Fosun owns 4/7 of the project, and SCMP Group owns the rest) and the HK$1 billion-plus the remaining four properties are worth at current market prices.

If my analysis is right, we can conclude that Kuok at least made all the right property investments for the group despite several bad business decisions (such as selling many of its businesses after the SARS scare, raising his stake months before the global financial tsunami and, worst of all, not investing enough in the core media business).

Meanwhile, the valuation of the media assets is disappointing.

Yes, it is slightly higher than the US$250 million Jeff Bezos paid for the Washington Post two years ago, but it appears that Alibaba's Jack Ma Yun is stealing a deal without having to pay much by way of political and control premium.

Ma is paying 10 times annual adjusted earnings before interest, taxes, depreciation and amortization, compared with the 17 times ebitda Bezos paid for the Washington Post, Bloomberg reported.

By contrast, Nikkei Inc.'s US$1.3 billion purchase of the Financial Times valued the British newspaper at 35 times adjusted operating profit. 

Ma is also paying less than twice SCMP Group's 2014 media revenues.

That's a lot lower than the six times projected 2016 revenues Axel Springer SE paid to buy US website Business Insider, Bloomberg figures show.

Of course, the SCMP is hardly the Financial Times, but only Kuok and his family know why he suddenly wants out at a discount.

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EJ Insight writer