Nikkei finalizes FT deal – but is it already seen as a mistake?
Sentaku magazine – a proudly small circulation, independent publication for Japan’s political and business elite – claims that within the two months since the Nikkei takeover of the Financial Times and today – when the deal was finalized – opinion inside and outside the Nikkei has begun to turn against the acquisition. The view is that no positive impact is seen in the two areas in which synergistic benefits were claimed – digitization and globalization. Rather, the office lease and pension issues look to be heavy burdens which could shake the Nikkei group’s foundations.
I’ve precised the rather bitchy (most industries like internal gossip, but journalists have a public forum to do it in I suppose) article as follows:
Within a few days of the deal being announced on the 23rd July 2015, the Nikkei set up an FT project office. Within it were a team focused on closing the deal, working with lawyers and accountants and also a business development and strategy team. Whereas the role of the first team was clear, the second team’s objective, of “finding synergies between the FT and the Nikkei” caused ructions. It was assumed, as it had been mentioned at the press conference, that these synergies had already been found. The Nikkei President’s words were now looking rather hollow. A sense of unrest – “are we going to be OK?” – began to permeate the Nikkei staff.
The membership of the team was also unsettling – only people, from editorial or the financial management side, who had experience in Europe or North America were selected. They did not have experience or expertise in 21st century global media or digitization, and nor, even with an interpreter, are they capable of debate with the FT personnel on these subjects, judges Sentaku. Rather, they seemed to have been selected in order to give experience to people who were earmarked for future executive positions.
Sentaku points out that you can’t really expect traditional Japanese print media to come up with progressive global digital media ideas, because those ideas threaten the very existence of a print based newspaper. Sentaku continues in a scathing tone – “most of Japan’s newspapers have just paid lip service to digital, with no one being willing to take a stand because of the ‘nail which sticks out gets hammered down’ mentality. Journalists who pride themselves on their connections to politicians and the civil service, and put editorial above all, cannot be expected to have gained any understanding on how to manage media in the 21st century. The only thing major newspaper executives are capable of doing is pleading for a lower tax rate when the consumption tax was raised.”
As it is often said that the real hard work is 99.9% after the deal is finalized, with nothing more to build on than a vague sense of both papers being financial publications – therefore there must be some synergies – “it is rather like when the Tokaido bullet train and Keihama bullet train systems merged and there was supposed to be synergy” says a former top executive of a Japanese manufacturer. “Customers can change trains more easily, but it doesn’t mean the number of passengers will double”.
The FT has its readers and the Nikkei has its – just because the top management are the same, it does not automatically mean the value of the publications will improve or the readership will rise.Whereas Nikkei readers might welcome more FT articles, if there are more Nikkei articles foisted on the FT, the FT’s readers in Japan will probably fall away.
As for digitization, in Sentaku’s opinion, the technology that the FT has developed is not so innovative, compared to the new media technology coming from the USA, that it was worth the price paid.
On the other hand, for the FT, the Nikkei represents a fat wallet. The FT’s profit was around Y4000m ($32.5m at today’s exchange rate) but this does not take account of the office lease and is the result of severe cost cutting by the previous parent, Pearson. Out of this, the Nikkei is now going to have to pay rent to Pearson on the office building housing the FT, which is around $16m a year, Sentaku estimates and also look after the pensions of several hundred employees who are thought to be treated better than employees in any other newspaper in the world. “It’s the kind of legacy cost that brought down the US Big 3 car companies” says Sentaku.
The FT’s management welcomed being acquired by the Nikkei because they thought they would be able to increase their administrative expenses and protect their pensions, which were under threat from Pearson’s stinginess, Sentaku asserts. “The FT won’t have thought they were going to become global by linking up with the Nikkei. Rather, they are banking on a hidden clause that the reassurance of editorial independence is backed by the administrative expenses also remaining untouched.”
Sentaku believes that the reason the Nikkei went ahead with an acquisition they should have avoided can be found in the top management. The current chairman Tsuneo Kita is seen as the person who made the Nikkei digital version a success and has outshone Takuhiko Tsuruta, the previous President, known as the Don of the Nikkei who was embroiled in various scandals a decade ago. “Although Tsuruta was cleared, Nikkei staff have a different opinion on the matter…and although Kita was a digitization pioneer, he has little support inside or outside the company. There are no voices clamouring for him to be made head of the Japan Newspaper Publishers and Editors Association.”
Executives close to retirement want a final honour or glory, says Sentaku. If they can’t get to head up an industry association, then they look to do something to surprise everyone. M&A glorifies those who push it through, leaving the successors with the headache. Can, as China’s economy slows down, shaking the world economy, the Nikkei bear the burden of the FT? Sentaku says there’s a 50% chance the Nikkei will sell the FT within 5 years.
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