By Mak Yuen Teen
I am a shareholder of SPH. The following is the draft list of questions that I will be sending to the company for the EGM to be held on 10 September 2021. I have confined my questions to the two resolutions to be considered at this EGM, particularly the first resolution. Questions relating to the proposed privatisation of SPH by Keppel Corporation will be submitted when the EGM to consider the privatisation is announced.
A) Conduct of the EGM
I note that SPH held a virtual dialogue with SIAS on 26 August 2021 which was scheduled for one hour and opened on a first come first served basis with limited slots available. Apart from the limitations imposed, this is not a substitute for engagement at an EGM.
Question
1) Given the importance of the resolutions – particularly the fact that SPH is proposing to donate S$356.8 million of shareholders’ money – why did the company not have “live” Q&A (rather than just “live” text chat) and “live” voting at the coming EGM? Shareholders are put in a position of having to vote before their questions have been answered. Shouldn’t SPH, being in the media business, have set an example on communications?
B) Appointment of Credit Suisse as financial advisor for the strategic review and proposed restructuring
On 30 March 2021, SPH announced that it was “undergoing a strategic review to consider options for its various businesses. Credit Suisse (Singapore) Limited had been appointed as its financial advisor for this purpose. While SPH’s Media business continues to face a challenging operating environment and outlook, the Board of Directors believes that SPH remains undervalued and the objective of the strategic review is to unlock and maximise long term shareholder value.”
Questions
2) Can the board explain the process and criteria for selecting Credit Suisse (CS) as “financial advisor for the strategic review”?
3) Was CS appointed at that time both to undertake the strategic review and as financial advisor in the event that the SPH will be restructured?
4) If so, did the board consider that CS would have an incentive to recommend a restructuring in its strategic review as it will stand to earn additional fees to advise on the resulting restructuring?
5) Is CS providing any other advisory or banking services related to the restructuring, including to any bidders who may be interested in acquiring SPH or parts of its business?
6) At the time when CS was appointed, the CS group had already faced intense criticism and scrutiny for the collapse of Greensill that same month, and prior to that, for its roles in corporate scandals involving Luckin Coffee, Wirecard and WeWork. In April 2021, the group had to write off US$5.5 billion for losses at Archegos. These episodes raise concerns about the corporate governance and management of CS and has adversely affected CS’s reputation. In light of this, did the SPH board consider whether it is advisable to appoint CS as financial advisor for the strategic review and restructuring?
7) What experience does CS have in undertaking strategic reviews for news media businesses?
8) What were the terms of reference given to CS for the strategic review?
C) Options for the Media Business
There are four options for the media business:
- Keeping it
- Closing it
- Selling it
- Giving it away
In its analyst briefing on 6 May 2021, the company highlighted the significant challenges in operating SPH Media under the existing framework. It concluded that running the business under the current ListCo framework is not feasible. In other words, option (a) is not feasible. It explained that this is because of the secular decline in traditional print media and competition for digital revenue, which have resulted in declining profitability for SPH Media. According to the company, business circulation and digital revenue have gone up, but it is unable to offset the decline in revenue of the print advertisement business. It concluded that losses were likely to continue and widen for the next few years; additional investments, time and costs will be required for the ongoing digital transformation, and there is little scope for further cost cuts without compromising the quality of journalism.
The company also explained that the Newspaper and Printing Presses Act (NPPA) regulates the media business and the buyer of the business. This imposes restrictions over shareholders and other respects, and all will be subject to the regulators’ approval. No one can own more than 5% of the shares of the company without the regulator’s approval. Management shareholders also hold shares with 200 votes (management shares will convert to ordinary shares if approved by shareholders under Resolution 2 of this EGM, which is conditional on Resolution 1 on the proposed restructuring being approved).
Questions
9) Were all the options above considered in the strategic review so that long-term shareholder value could indeed be maximised, or were certain options not available to SPH because of the control of voting rights by the management shareholders or constraints imposed by other stakeholders, such as the Government?
10) Related to question (9), was closing the media business (option b) something that SPH could consider since other newspaper publications have in the past closed when they became unsustainable? [This does not preclude another news media company being formed which may re-hire existing SPH employees].
11) In the strategic review, was there a study of media companies in other comparable countries to understand how they remained sustainable? For example, New Zealand has a population smaller than Singapore but has several major newspapers and also provincial newspapers.
12) What was the extent of the board’s involvement in overseeing the strategic review and the proposed restructuring? Was any board committee formed to assist the board in overseeing the strategic review and proposed restructuring?
13) Looking at the board of directors, the CEO, deputy CEO and CFO, none appear to have any prior working experience in the news media or advertising industries at the time of their appointment. An analysis of the 10 largest news media companies in the world show that they have board members/management with significant experience in the news media industry and closely-related industries. Are the SPH board and senior management equipped to oversee and manage “the significant challenges in operating SPH Media”? Are the problems faced by in SPH’s media business caused solely by externalities or could the lack of experience in the news media and advertising industries (given decline in advertising revenue) have been a contributing factor?
14) Related to (13), did the company consider whether restructuring the board and management by appointing some members who have significant experience in news media and advertising may help it to achieve long-term sustainability for the media business?
15) Did the company engage with the relevant authorities to confirm that the authorities are not open to any shareholder owning more than 5% of the shares of the company, by replacing the shareholding limit with alternative safeguards, such as a “golden share”, allowing the government or regulator to have approval or veto rights over certain decisions (such as appointment of directors)? This could have opened up the possibility of option (c).
D) Giving Away the Media Business (Option d)
The company is donating SPH Media (including its stakes in 4 digital assets) to a new company limited by guarantee (CLG), and will further capitalise SPH Media with an injection of cash, SPH REIT units, and SPH shares. It will also assume certain liabilities, costs and expenses potentially arising from the Proposed Restructuring. Based on the circular, the aggregate value of SPH Contribution is S$356.8 million.
Questions
16) When SPH announced the strategic review on 30 March 2021, the board said that “the objective of the strategic review is to unlock and maximise long term shareholder value”. Can the board explain how giving away the media business and further capitalising SPH Media is consistent with maximising long term shareholder value?
17) Was it the recommendation of CS that SPH should give away the media business and further capitalise it?
18) Will the new CLG be an institution of a public character (IPC) and will SPH receive any tax benefit for the donation? If not, did the board engage with the relevant authorities to explore the possibility of the new CLG being given IPC status given that it is assuming a business which already has a considerable track record, so that SPH will receive a tax deduction for its donation?
E) Recommendation of the Proxy Advisory Firm, Glass Lewis
On 30 August 2021, the Straits Times reported that proxy advisory firm, Glass Lewis, said that SPH shareholders “would be well advised to support the company’s plan to hive off the media business”. This was also reported in other media. Unfortunately, the media reports did not provide information about the basis for Glass Lewis’s recommendation, which is likely to significantly influence how institutional shareholders vote. It is unclear what knowledge the US-based Glass Lewis has about the news media business in the context of Singapore. While Glass Lewis’ services are mainly targeted at investors, its website says that it also provides a number of “Public Company Solutions”.
19) Can SPH explain whether it engaged with Glass Lewis to seek its support for the hiving off of the media business, and if so, what is the nature of this engagement? If so, did it have to pay for such engagements?
20) Is Glass Lewis providing any other services to SPH, or to Keppel Corp which is proposing to privatise SPH?
