It will definitely be a drama and certainly an exciting one: The takeover battle for PubliGroupe will keep the media industry spellbound as summer theater. On the one hand, there is the decline of the former "P" empire - a story that is sure to be reminisced about many times. And secondly, the battle between two current rivals who covet the rest of the empire. First, a brief chronology of the final chapter in this story of a foretold demise: April 2, 2014: advertising broker PubliGroupe divests itself of the traditional advertising business and sells its subsidiary Publicitas to the German company Aurelius. April 17, 2014: Tamedia publishes a pre-announcement of a public takeover bid for PubliGroupe, offering CHF 150 per share. April 25, 2014: Swisscom submits a non-binding offer of CHF 230 million to PubliGroupe for the shares held by PubliGroupe in LTV Gelbe Seiten AG and Swisscom Directories AG. The local.ch business, which was previously managed as a joint venture, would thus be fully owned by Swisscom. May 14, 2014: Tamedia acquires the PubliGroupe shares previously held by the investment company Tweedy Browne LLC at CHF 190 per share, giving it a 17.6 per cent shareholding. Tamedia thus becomes PubliGroupe's largest shareholder. May 16, 2014: Swisscom publishes a pre-announcement for a public tender offer for PubliGroupe shares at a price of CHF 200 per share.
Takeover Commission coordinates bidding rounds
The next stages are foreseeable due to the legal requirements (primarily in the provisions of the Federal Act on Stock Exchanges and Securities Trading, "Stock Exchange Act" or SESTA). The Takeover Board (TOB) has a central role to play. Under the SESTA, this federal authority is responsible for ensuring that public takeover offers comply with the statutory provisions. It defines general principles and coordinates the process in individual cases, for example when the timing of several offers has to be coordinated.
Last winter, the battle between AEVIS Holding SA and Swiss Private Hotel AG for Victoria-Jungfrau Collection AG showed how such a takeover battle can unfold. AEVIS Holding's pre-announcement at the end of October and the publication of an offer prospectus at the beginning of November (CHF 250 per share) were followed shortly before Christmas by Swiss Private Hotel AG's pre-announcement (CHF 277). A few days later, AEVIS published the first amendment to the prospectus and extended the offer deadlines due to the counter-offer in accordance with the requirements of the TOB. In a second prospectus amendment on January 23, AEVIS increased the offer price to CHF 305. This affects the deadlines for the offer by Swiss Private Hotel AG, which follows suit a week later and increases the offer price to CHF 310 (which in turn affects the deadlines for the AEVIS offer). In mid-February, AEVIS Holding also offers CHF 310 with a fourth prospectus amendment. In March, both opponents first publish provisional, then definitive interim results and finally the definitive final result of AEVIS Holding makes it clear that it is the winner - above all because it was able to acquire significant third-party shareholdings.
The publication of an advance notice also affects the board of directors of the target company. It may no longer act at will and, for example, sell parts of the company. (Although otherwise within the remit of the Board of Directors, Swisscom's first purchase offer for the two parts of the company would have required the approval of an Extraordinary General Meeting). Above all, the Board of Directors of the target company must submit a report to the holders of equity securities in which it comments on the offer. An essential part of this statement is a fairness opinion. In the case of mergers and acquisitions (M&A), this refers to the opinion of an independent expert based on a review of publicly available documents to assess a planned (re)acquisition from the shareholders' perspective. Like the offer prospectuses, these documents are also submitted to and reviewed by the Takeover Board.
Bidders can comment on this and request additions. This was also the case with the Jungfrau Collection takeover, where the Fairness Opinion judged the first offer of CHF 250 to be too low. The target company is obliged to treat all bidders equally. For example, if it has granted a friendly bidder a due diligence review and thus an in-depth insight into non-public business areas, it must also grant this to subsequent bidders. The Board of Directors of PubliGroupe has announced that it will comment on the two purchase offers as soon as they are definitively available and will base its decision on a fairness opinion that has already been commissioned. Based on a study by Zürcher Kantonalbank, Finanz und Wirtschaft (owned by Tamedia) recently calculated a fair value of a good CHF 340 million, which was in the same order of magnitude as Tamedia's first offer of CHF 150 million, resulting in an enterprise value of PubliGroupe of CHF 351 million. However, FuW admitted that its estimate was based on a "conservative and rough calculation due to a lack of data" - it will be interesting to see how high the PubliGroupe Board of Directors estimates the value of its remaining company and how the shareholders and bidders will react to this.
Complex cross-shareholdings
The motives for the takeover of PubliGroupe are no less exciting than the presumably imminent bidding race. Tamedia representatives have repeatedly stated that PubliGroupe is primarily interested in local.ch. A closer look at the facts reveals that this statement can at best be understood symbolically. In detail, it concerns a joint venture that was set up with these two companies in 1999:
Swisscom Directories AG: Swisscom: 51 percent, PubliGroupe: 49 percent. The universal service license that Swisscom Fixnet received from the Federal Council also includes the task of operating a directory service together with all telephony service providers. Swisscom Directories provides this service on behalf of Swisscom and the other providers of telephone connections (e.g. Sunrise, Swisscom Mobile, Orange, etc.), who must collect and provide the necessary data. In addition, Swisscom Directories AG maintains an emergency database on behalf of OFCOM (Federal Office of Communications), which is used to locate emergency calls and transmit the corresponding geo-coordinates to the relevant emergency organizations. This directory data is in demand and is sold for good money: In addition to the print and online directories, voice information services (18xy) are also based on this data, which is also used for dialog marketing, business information, etc.
LTV Yellow Pages AG: Swisscom: 49 percent, PubliGroupe: 51 percent. This company (LTV stands for Lokal-Telefon-Verzeichnis AG) was founded in the 1970s and was taken over by PubliGroupe in 1996. Its core business was and is the publishing of around one hundred telephone and business directories and the acquisition of advertising in these directories. With a return on sales of around 20 percent, this area was one of PubliGroupe's most profitable for a long time. Even in the online age, printed telephone directories are far from obsolete. According to a study conducted last year, three quarters of the Swiss population use paper telephone directories. Even if this business is suffering under the pressure of online directories, it is still profitable: PubliGroupe's annual report for 2013 shows that LTV Gelbe Seiten AG transferred dividends of CHF 6.4 million (2012: CHF 6.9 million) to Swisscom as part of the joint venture.
Local.ch AG: A wholly-owned subsidiary of Swisscom Directories AG (which in turn is 51% owned by Swisscom and 49% by PubliGroupe, see above; PubliGroupe representatives therefore also sit on the Board of Directors). This company was founded in November 2005 by PubliGroupe as part of the joint venture with Swisscom and worked closely with LTV Gelbe Seiten AG from the outset in the marketing of printed and electronic directories. After five months of development, the regional search engine went live on April 18, 2006 at 6:53 p.m. and, according to the company blog, recorded 2731 visitors after two days - today there are over four million unique clients per month, making local.ch one of the most visited sites on the Swiss Internet. Recently, the joint venture companies have combined their market presence under the local. ch brand. The telephone directories now come under the LocalGuide brand, which belongs to LTV Gelbe Seiten AG. This consolidated external presence may explain why the takeover deal is often presented as being solely about local.ch. However, this view does not do justice to the ultimately decisive legal aspects.
Search.ch AG: Tamedia 75 percent, Swiss Post: 25 percent. Ten years before local.ch appeared on the web, a Swiss search engine was already active under search.ch. Founded by IT pioneers of the time, the telephone directory could be searched there from the end of 1999. In mid-2004, Swiss Post took over this information platform from Switzerland for Switzerland - another attempt by the yellow giant to gain a foothold on the Internet. With limited success, because four years later the majority shareholding of 75 percent went to Tamedia (at the same time as the announcement that Tamedia and the NZZ Group were transferring their activities in the early delivery of newspapers and magazines to Swiss Post). It is noteworthy that the development team of search.ch moved on to Swiss Post after the sale and laid the foundations for Google Maps, which today has become the driving - albeit not commercially dominant - force in the local search market.
Only meager yield without a strong sales force
This results in the following starting position: Tamedia: If the PubliGroup takeover is successful, Tamedia will only be able to acquire a majority stake in LTV Gelbe Seiten AG. However, this is not just about printed telephone directories, but above all about the sales force that collects advertising. It comprises around 400 employees and is therefore around ten times larger than the sales force at search.ch. Swisscom: It must fear losing precisely the advantage of the LTV sales force at local.ch. Without the cooperation with LTV Gelbe Seiten AG, local.ch would not get off the ground with its own sales staff any more than search.ch does today. The takeover battle for PubliGroupe is therefore primarily about the LTV ground team. After all, if you want to sell additional listings to local businesses for a fee, it's best to sit in the innkeeper's bar or visit the garage owner in his workshop. There is hardly much to be gained from a web form or telephone sales alone.
The two purchase offers from Tamedia and Swiss com are thus characterized by the realization that the online business with directory data alone will not be able to get off on the right foot. Although the Tamedia company spokesperson, possibly with the Competition Commission in mind, reassures that search.ch and local.ch are to continue as independent brands and that they "would be interested in a constructive cooperation with Swisscom", they also say that they are "convinced that the takeover of local.ch could create an even stronger Swiss directory provider". Meanwhile, Swisscom writes that with the intended takeover it wants to "take full control of local.ch and further develop the directory business, which is strategic for Swisscom, in the existing market environment. "
If the two opponents proceed correctly, there will have been no mutual agreements in the run-up to the takeover battle. The Bernese must therefore reckon with a scenario that takes into account Tamedia's previous business practices, which have sometimes been k(n)all-hard. Tamedia could terminate the joint venture and operate the directory market itself in future with search.ch and the strengths of LTV (the basic concession to Swisscom requires it to manage the directory for all telephone lines, but not to publish telephone directories). It is therefore clear that the assets of LTV Gelbe Seiten AG are strategically important for both parties. Swisscom cannot easily replace them quickly. On the other hand, it is questionable whether Tamedia will be able to simply switch the LTV sellers to its existing competitor product.
Who will win the race?
Anyone who wants to take over PubliGroupe needs 66 ⅔ percent of the shares, either in their own hands or as a binding commitment.
Tamedia: The Zurich-based company already holds at least 17.6 percent of the shares, making it the largest shareholder in the Lausanne-based advertising intermediary. They still need just under 15 percent of the shares in order, if not to take over PubliGroupe, then at least to make this step impossible for the Bernese competition. If not only monetary but also moral considerations play a role for the shareholders, Tamedia is at a disadvantage: it has helped bring about the decline of "P" in recent years and decades with its business policy (keyword: self-marketing) and is now acting as an aggressor to give it the final blow.
Swisscom: The Bern-based company can point to its long-standing partnership in the established joint venture, which should be preserved. The Confederation's majority shareholding could be interpreted adversely in a takeover battle. It therefore seems prudent that Swisscom initially only submitted a purchase offer for the affected parts of the company (and thus apparently did not meet with the approval of PubliGroupe's Board of Directors).
Ringier: Group CEO Marc Walder said at a panel discussion on May 9 that if a company like PubliGroupe was up for sale, "Ringier would also be interested". Ringier has been the sole shareholder of the Scout24 companies (AutoScout24, MotoScout24, ImmoScout24) in Switzerland since the beginning of this year and, with these marketplaces for classified ads, complements the directory services of local.ch. However, no offer from Ringier has yet emerged.
PubliGroupe: Following the announcement of the Swisscom takeover bid, the Board of Directors of PubliGroupe AG announced that it would take a position on the two offers and "be guided in this assessment strictly by the interests of all shareholders and the interests of all stakeholders". The better price will probably be the deciding factor, even though the press release concludes: "PubliGroupe is positioning itself as a leading European provider in the field of performance marketing and digital advertising trading. Following the sale of Publicitas, the group will generate over 80 percent of its sales with digital products and services. " The Board of Directors will want to demonstrate the extent to which the existing holdings (such as Zanox) and the recently acquired new holdings (including Improve Digital, Spree7 and recently Sellbranch) not only form a pure holding company whose assets can be traded individually, but how these holdings together can achieve promising synergies with added value. If this is successful, shareholders could be persuaded to hold on to their shares, or a new owner could be prevented from breaking up the rest of the company and selling it to the highest bidder.
Fear opponent Google
Finally, the question arises as to the future prospects in this business, as the keyword "local search" could be about much more than just telephone directories. And there is a clear fear opponent and that is Google. Although Google does not have private addresses like local. ch and search.ch, but only companies are of interest for ad sales anyway. And they have long had their own websites and can therefore be found directly via search engines without having to switch to a special directory. While many commercial websites today are still old-fashioned and home-made, this will change in the near future. The market for professional web design is well-stocked and these SME sites are becoming increasingly interactive, search engine-optimized and geo-coded. Both local.ch and search.ch could have been innovative in this area for years, but have stuck to their core business. According to an entry on the employer review portal kanunu. com about local.ch from 2012, the employees seem to have recognized this, but not the bosses: "The management should focus much more on online instead of continuing to keep the printed directories. Customers are being ripped off because they are told that the advertising products are great for them."
Whoever emerges victorious from the takeover battle: Further consolidation in the online directory market in Switzerland is foreseeable, at least in the longer term. It therefore seems questionable to burn millions of francs in a takeover battle - in a dwindling market, not to mention a market in which around one million francs are offered per LTV sales representative. A forward-looking merger would be preferable to a costly takeover - especially if the planned takeover does not materialize. Such a new company could combine the strengths of the three players and would have a better chance of scoring points in the market against Google. This can only succeed if an innovative start-up with entrepreneurial freedom is created. The Competition Commission is unlikely to oppose such a merger (or a takeover). When it had to assess the joint venture four years ago, it found no reason to examine the case and said that it would be easy for new online directory services to enter the market as they could all use the same basic data. Since end customers could simply switch to other providers, such as search engines, the advertising market in this area was exposed to neighboring markets and the constantly decreasing importance of telephone directories and printed business directories also suggested that there was great competitive pressure, so that it was hardly possible in this advertising market to set prices independently in a monopoly-like manner. If such a merger were to take place today, the only ones to lose out would be PubliGroupe shareholders, who would still have to wait (and hope) for their shrunken company to earn a better price on the stock market through its own efforts - and they are unlikely to do so.
Christoph J. Walther
