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U.S. private equity investor KKR on Wednesday offered a 40% premium to buy out minority investors in Axel Springer in a deal that entrenches the influence of the main shareholders at the publishers of Germany's Bild newspaper.
The buyout offer of 63 euros per share puts an equity value of 6.8 billion euros ($7.7 billion) on the business. It will be subject to acceptances for 20% of Springer's share capital — a threshold one analyst said was within reach.
The offer, made in concert with main shareholders led by founder Axel Springer's 76-year-old widow Friede, would guarantee her a say over strategy even if KKR secures a majority stake.
"It's a partnership of equals," CEO Mathias Doepfner told reporters on a conference call.
Between them, Friede Springer and Doepfner control 45.4% of Axel Springer.
Axel Springer's grandchildren, Axel Sven and Ariane who own a further 9.8%, are not party to the KKR deal and may decide to sell or reduce their holdings, Doepfner said.
The remaining 44.8% is in free float and is worth 3 billion euros at the tender price. Subject to successful closing, KKR, Friede Springer and Doepfner would jointly control the company while management would remain in place.
KKR has pledged to stay invested for at least five years.
This would buy time for Springer, which also publishes financial news website Business Insider, to prospect for acquisitions and build its digital classifieds portfolio, which earns more than four-fifths of its core profit.
"In light of the fast pace of change in the media sector, Axel Springer now needs continued organic investments and successful execution of its strategy," said KKR's Philipp Freise, adding that KKR would support this "in a long-term and sustainable manner".
A banker familiar with the deal said Springer's main owners wanted to uphold the company's heritage in news and take their time to expand its classifieds business, eschewing the idea of a breakup.
Springer shares jumped by nearly 12% to trade almost at the buyout price.
They had rallied by 20% last week on news of the KKR plan before steadying to close at 56 euros on Tuesday.
"Our growth plans will require significant investment in people, products, technology and brands over the next years," said Doepfner, adding that the strategic partnership with KKR would create headroom for organic investments and acquisitions.
Springer is not in any active merger talks now but is on the lookout for opportunities, Doepfner said. He added that, despite speculation to that effect, eBay's European classifieds business was not yet up for sale.
Analyst Ian Whittaker at Liberum said KKR's offer for Springer shares would almost certainly be accepted, adding that it would fuel M&A speculation in European digital classifieds at a time of growing economic headwinds.
Even as it disclosed the KKR buyout deal, Springer issued a profit warning, saying it saw a drop in revenue in the low single-digit percentage range this year. Its adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) face a mid-single-digit drop.
Looking ahead to 2020, the German publisher said its investment plans meant that adjusted EBITDA would be "significantly below" the current year, before an improvement expected in the ensuing years.
Doepfner said the downgrade was due to the impact on Springer's flagship jobs portal, Stepstone, of cyclical economic weakness and of Britain's plans to leave the European Union.
Stepstone has also complained to the European Union over Google's recent launch of a jobs product in Germany that has grabbed a market lead overnight, in a reminder of the threat posed to legacy media firms by Silicon Valley's digital platform giants.
In bringing in KKR, Friede Springer has chosen a counterpart with a track record of long-term investments in the German media sector.
KKR, together with Permira, bought control of ProSiebenSat.1 in 2007 and sold out in 2014, having broadened the broadcaster's entertainment offering and launched a foray into e-commerce.
The private equity firm also entered a music rights joint venture with Bertelsmann in 2009, selling its stake back to the publisher four years later.
KKR said it was financing the offer primarily from its European Fund V.
JPMorgan is acting as financial adviser, while UniCredit is providing financing.
Its voluntary offer is subject to approval from the German financial regulator.
Allen & Company and Goldman Sachs acted as financial advisers to Axel Springer, while Lazard & Co advised its supervisory board.