SINGAPORE - Shareholders of Singapore Press Holdings (SPH) would be well advised to support the company's plan to hive off its media business at an extraordinary general meeting (EGM) on Sept 10, said proxy advisory firm Glass Lewis.
"Given the significant and recurring losses of the media business and the limited available alternatives for such business, we believe the proposed restructuring warrants shareholder support at this time," the US company said in a report last week.
It added that the benefits of the proposed restructuring are expected to outweigh the costs involved.
"The company will be able to free up more working capital to fund its more profitable businesses."
Earlier this month, SPH's appointed independent financial adviser Evercore Asia (Singapore) arrived at a largely similar conclusion.
In an Aug 17 letter to the SPH board of directors, Evercore said the proposed restructuring of the media business "is in the overall interest of the company and shareholders".
Evercore said the move will allow the company to "set a clear strategic direction with a focus on the real estate sector and related segments of student accommodation and aged care".
At the Sept 10 EGM, shareholders will vote on the transfer by SPH of its media business to a newly formed company limited by guarantee for a nominal sum of $1.
They will also vote on the conversion of each management share held by a management shareholder into one ordinary share, and the related adoption of a new Constitution. This is contingent upon the passing of the first resolution on the transfer of the media business.
SPH, which publishes The Straits Times, announced its plans to transfer the media business to a not-for-profit company as part of a strategic review of its various businesses on May 6.
The move is the first step in a strategic revamp that could see the privatisation and sale of the rest of SPH to Keppel Corp in a $3.4 billion deal. The proposed acquisition by Keppel is subject to SPH shareholders first approving the media restructuring plan.
Glass Lewis said: "We view the proposed restructuring as an initial step... to maximise shareholder value, given that (it) will help pave the way for shareholders to be able to consider and vote on the scheme (the full-bid acquisition proposal from Keppel) at a future shareholder meeting."
The move comes as traditional print media faces secular decline with consumer preferences increasingly shifting towards digital media, a trend that has been accelerated by the Covid-19 pandemic.
While SPH has been successful in strengthening its digital offerings, it still faces monetisation challenges, given the competitive landscape in which the media business operates.
"The growth in the media business' digital subscription and digital advertising has not been, and is not expected to be, enough to offset the decline in print-related revenues," the Glass Lewis report added.
The operating revenue of the media business has halved over the past five years. It recorded its first pre-tax loss of $11.4 million for the year ended Aug 31, 2020.
This figure would have been $39.5 million if not for the Government's Jobs Support Scheme.
With advertising revenue expected to continue declining, SPH has increased its investments in digital platforms and implemented various cost control initiatives, said Glass Lewis.
"However, further investments will likely be needed to continue the digital transformation of the media business, and the company believes there is no further room to make material cost cuts without impairing the quality of its journalism," the US firm added.
"Moreover, given the public role of the media business, the company believes that a wind-up or sale of the media business are not feasible options."