Power play at Le Monde (Part II)
Previously on “House of Niel”…
- Xavier Niel, the French telecom mogul is fighting tooth and nail to retain the ownership share of the media group that gives him influence and power.
- But one of his partners in the recapitalization of Le Monde nine years ago, the Lazard partner Matthieu Pigasse, has teamed up with a Czech billionaire, Daniel Křetínský, who is patiently assembling a media conglomerate in Europe. By acquiring the shares owned by the Spanish group Prisa, the duo Pigasse-Křetínský (the Czech being wealthier than the French banker) could shift the balance of power.
- Encouraged by Xavier Niel, Le Monde’s newsroom is calling for resistance against the move, and more specifically against Křetínský, also wounded by Original Sin of having made his fortune in fossil energy. (Evidently, Le Monde’s people can’t be suspected of a shred of xenophobia).
- For more, see last week’s episode:
Episode 2: The Foundation
It could open with a chiaroscuro scene, in which Xavier Niel would say, in a Frank Underwood enigmatic and chilling, way: “You know, I am a very effective man…”
He is. Last week, Niel came up with a coup: since all stakeholders claim to be genuinely preoccupied with Le Monde’s independence, why not put everything in a Foundation that will preserve, forever, the freedom of the paper. (Then you can hear the claws of the trap snapping).
Opting for a Foundation has the following consequences:
As the shares of the trustees become non-transferable and illiquid, their value drops to zero.
The first signal Xavier Niel therefore sends is that he does believe in the economic value of Le Monde as a media company (this is an important distinction, more in a moment). Or more precisely, appearing as the person who secured the ownership of Le Monde far outweighs the financial inconvenience from owning it. As explained last week, to Niel, the intangible advantages of his position in Le Monde have a crucial impact on his businesses and go way beyond France.
With his foundation concept, Niel complicates the life of other stakeholders, who are not on an equal footing and don’t have the same agenda.
The Pigasse+Křetínský alliance is not keen on the foundation. Pigasse said yesterday: if Niel wants to transfer his shares into a non-profit, fine, we’ll be happy to work with him [read: but certainly not to join]. In fact, Pigasse could not afford the write-off that would go along with such a transfer.
Pierre Bergé’s widower disagreement
Berlys Media is the estate of the late Pierre Bergé that holds the shares in Le Monde Libre, (see chart below) controlled by his widower, Madison Cox. In short: Cox wants to maximize the value of his stake, one way or another. Under the will of his late husband, the shares are to be split evenly between Niel and Pigasse+Křetínský, by January 2021. Except that Cox wants a nice deal. Meaning: no foundation and the radical depreciation that goes with it, and no restrictions on possible new shareholders. That’s why Cox has refused to sign the safeguarding agreement (Pacte d’agrement).
The situation looks like this:
Quid lucrum istic mihi est*?
*What’s in it for me [Le Monde, Niel, and others]?
Well, it depends on the lens you chose. In theory, a foundation is a journalist’s dream as an owner. “Look at the Guardian!” say people at Le Monde.
OK, let’s look at it precisely.
The Guardian Media Group has been owned by the Scott Trust since 1936. Its endowment amounts to one billion pounds sterling, give or take minor variations. Less than ten years ago, when the losses of The Guardian started to pile-up significantly, the Scott Trust demanded more stringent fiscal discipline. The latest annual report gives a compelling image of the huge cash infusions sent by the trust:
Again, we are talking about a trust that has a reserve of £ 1.01 billion (€1.14 billion or $1.26 billion). In the case of Le Monde, even under the best (and unlikely) scenario, the foundation will have less than €100m. Even if I’m off by a factor of two, there is no comparison.
It means two things:
- One, Le Monde better be profitable in the years to come. That is far from guaranteed. In 2018, its Y/Y revenue declined by 6% to €305 million while its EBIDTA dropped by 32% to €11.6 million. The net profit, however, increased twofold to €14.6 million thanks to a one-time real estate sale. This fiscal year, Le Monde is facing a degraded advertising environment and the probable folding of its weekly L’Obs, especially if the tensions that remain between shareholders prevent any cash infusion to the magazine.
- Le Monde is only one of many newspapers (print+online), that is no longer able to make money. In this business, building a diversified portfolio of diversified activities — outside the core news business — is therefore crucial. To put things in perspective, Le Monde’s conservative rival, Groupe Le Figaro, last year made €34 million in operational profits on a revenue of €630 million. It is not a secret that, while the paper is losing money, margins come from other activities that were the results of heavy investments such as the acquisition a few years ago of a large internet media company, CCM Benchmark, for about €100m that churns 25% of operating margin and grows steadily. Will Le Monde be able to pursue such an external growth operation with its shaky foundation structure?
What’s in it for the Pigasse-Křetínský alliance? For one, the Czech dealmaker will take the lead. (Each in their own way, DK and Niel hold the Lazard banker by his vulnerable parts). He already owns several magazines and media properties purchased from Lagardère Groupe (magazines, including Elle, radio stations in Europe). He wants to build a robust press media empire, buttressed by multiples synergies. Unfortunately, given the current ambiance, he will have to be patient before outlining its industrial vision.
Niel is thinking of his next move. If the others dismiss his foundation idea, he might move on anyway. The write-off will be minimal (~€15 million) and he will retain a great deal of power thanks to the cash advances he has made to Le Monde over the years. Niel will be as powerful as a dominant creditor might be—who will want to secure his credit. If things go South, he might be able to reclaim some critical assets such as, for instance, some rights on the new Le Monde headquarters.
The 23,000-sq. meter building is to be inaugurated this November (two years later than anticipated). It is a superb piece of architecture, designed by the Norwegian firm Snøhetta, author of several landmark works (the Olso opera, the 9/11 Memorial in New York, and the extension of the SF MOMA). The building was commissioned by the SEM (Société Editrice du Monde) in 2013–2014. Again, the internal narrative within Le Monde and elsewhere is that le nouveau siège (the new headquarters) will be the crown jewel of the empire and will constitute a major asset. The current value of the building is indeed huge: a corporate real-estate professional I talked to yesterday gave me an estimate between €480 and €550 million. Except that Le Monde doesn’t own it. It’s a lease-purchase agreement. Like in the leasing of a car, the tenant doesn’t own the asset until he exerts the contractual option to repurchase the property at a pre-agreed price. No one knows exactly how the deal is structured. Usually, the first window to repurchase occurs seven years after the signature (i.e., around 2021). Until then, Le Monde is a tenant like another. One thing is certain, though: Xavier Niel engineered the deal. If needed, he could vastly expand his position as Le Monde’s main creditor, and as such, retain a decisive power.
frederic.filloux@mondaynote.com
