ANALYSIS: Grammy: A media giant emerges?

Published on September 14, 2005 - Hostile or not, Grammy Group’s acquisition of the five newspapers of Matichon Plc and Post Publishing Plc is considered to significantly strengthen synergy for the group’s media businesses. “We’re making Grammy Group the first truly integrated entertainment and media business,” said Sumeth Damrongchaitham, a director of GMM Grammy who is also the younger brother of Grammy’s chairman, Paiboon Damrongchaitham.

To Sumeth, the five newspapers will provide advertising space as well as advertising outlets. He also expressed the opinion that the two companies were like other businesses which Grammy had previously taken over.

“We have no plan to introduce changes in the editorial department or the management. We’re just assisting them on marketing,” he insisted.

Since its establishment in 1983, the group has gradually built strongholds in the music, radio and film industries. Just recently it expanded to cover magazines. A month after GMM Grammy, the flagship entity, announced a plan to expand into the newspaper business with an investment of Bt100 million, the group stunned business circles with the planned takeover of Matichon and Post, representing a combined investment of up to Bt2.7 billion.

Observers consider this deal a major part of GMM Grammy’s expansion into other new cash-cow firms, amid the slowdown of existing businesses.

Beside the Bangkok Post, best-selling English-language newspaper in the industry, and Post Today - which is generally successful in the business daily sector - Post Publishing also owns several successful magazines, including Elle, Cleo and Marie Claire. These are leaders among the Thai versions of foreign magazines.

While the newspapers will provide outlets for Grammy’s entertainment content - through its six music groups and 18 music labels, as well 30 TV programmes and five radio stations - Post Publishing expertise in marketing magazines should also help the group, which has not yet made a success in building a stronghold in the magazine business.

At present, Grammy publishes Image, Her World, Madame Figaro, Maxim and In Magazine.

Meanwhile, Matichon has three newspapers in hand - Matichon Daily, the thrice-weekly Prachachart Thurakit, and Khao Sod. The three newspapers’ combined circulation exceeds one million copies: 500,000 for Matichon, 600,000 for Khao Sod and 100,000 for Prachachart Thurakit.

These too could serve as precious marketing outlets for Grammy’s products, especially Khao Sod, whose entertainment section is as competitive as that of other famous dailies. Plus, Matichon is known as a big player in the pocket-book market, where Grammy has just recently penetrated with pocket books aimed at readers aged 18 to 35.

Post Publishing and Matichon run their own printing houses, which are not believed to be operating at full capacity. Moving the printing of its magazines and pocket books to these printing houses would save Grammy large operating costs.

This should also complement GMM’s business, which earlier included Se-Education with its 326 branches nationwide.

To Kongkiat Opaswongkarn, chief executive officer of Asia Plus Securities, several listed companies are prone to takeovers as the founders or majority shareholders usually hold less than half of the total shares issued.

“The low-interest environment also provides a great opportunity to buyers. But whether this is a hostile takeover or will produce a synergy depends on what the old and new shareholders would agree upon,” he said.

Securities houses were dumbfounded by the move.

In its research dated Monday - when GMM Media, a radio business operating arm, announced the board’s decision to make an investment - Seamico Securities highlighted only Post Publishing as the takeover target.

To Seamico, the acquisition is aimed at producing synergy. “Post operates two daily newspapers - Bangkok Post and Post Today. With an 18.62-per-cent stake, GMM Media would be able to integrate Post Publishing and obtain synergy among its media businesses.

GMM Media would also have a lower risk than if it were to invest in a newspaper on its own, as Post Publishing is already profitable and offers a consistent annual dividend of 4-5 per cent,” Seamico reported.

However, it reckons that in terms of earnings, newspapers provide quite unattractive growth.

The takeover also comes at a time when Grammy Group is experiencing shrinking markets.

Phatra Securities on August 23 revised downward GMM Grammy’s 2005 earnings estimate to reflect a combination of a weak second quarter due partly to one-off changes and a more conservative assumption on the cost of sales.

It cut its earnings forecast for 2005 by 18 per cent to Bt503 million, mainly on slower music sales than previously thought. The revision took place after GMM Grammy shed 100 jobs from its workforce in June following poorer-than-expected second-quarter results.

According to Phatra, sales and administrative expenses now stand at 30 per cent, from 28 per cent previously. “We understand that Grammy has incurred higher expenses in the second quarter due equally to its business expansion (adding a few business units) and some one-off items (such as a goodwill write-off and other cost items),” Phatra stated.

Phatra also revised downward the 2006 earnings forecast by 16 per cent to Bt603 million for the same reasons. Sales and administrative costs are also raised by 5 per cent to account for the higher cost base from new business units unveiled in the second quarter.

Analysts yesterday refrained from making comments on the group’s outlook after the integration of the two publishing firms, saying that they were due to meet Paiboon today. It might then be clearer what plans he has charted for the entire group which, within 22 years, has transformed itself into a truly integrated entertainment and media empire.

Business Desk
The Nation