Behold, Saint Sinead of Stuff

The management buyout of Stuff turns out to be a ‘manager buyout’ as the chief executive takes on the momentous job of owning the publisher on her own. Tim Murphy says it is a hell of a task.

Next Monday, Sinead Boucher should find herself the sole owner of Stuff, our biggest digital and print news publisher.

Her deal to buy her current employer, its Stuff and Neighbourly sites and 49 newspapers is a gutsy, big-hearted and highly risky play which has won admiration from within her 900 staff and the news media industry.

For now, it’s all on her, because she is the individual buyer. The country’s latest media mogul. Maybe not a mini-Murdoch, as she pointed out to staff, but a Horton, or Brett or Smith of the Kiwi newspaper-owning families of old. Her financial backing – and there must be someone with deep pockets standing behind the new venture – has not been disclosed.

She’ll soon hold the keys, personally, to the two big websites and the Dominion Post, The Press, Waikato Times, Sunday Star-Times, and papers in Manawatu, Taranaki, Nelson, Timaru and Invercargill, among others.

Boucher intends to share the company ownership with staff, and perhaps with other investors, soon. And she would be well-advised to do so.

Having your name attached to saving a big Kiwi brand, its business and 440 journalists is a real credit. But having that same name responsible for whatever lies ahead for Stuff and its papers in a declining industry and historic economic catacylsm is not for the faint-hearted.

Stuff, despite mid-double-digit declines in advertising revenues over the past few years, still makes a profit. On Sean Plunket’s MagicTalk radio show on Monday, Boucher was momentarily unsure of the exact profit but put its latest annual Ebitda (earnings before interest, tax, depreciation and amortisation) at “in the 30 millions”.

Its last half-year earnings, announced as part of Australian owner Nine Entertainment’s financial performance in February, had Stuff’s revenue at $129 million, up 3 percent on the previous period. Revenue from advertising had dropped 10 percent to $67m and circulation by 3 percent, earning just over $41m over the comparable period a year earlier.

Boucher yesterday called that “really healthy” in the context of media businesses.

The other healthy part of this deal is Nine accepting it will take a further hit in its books of NZ$48m, on top of the $24m, according to The Australian newspaper that it wrote off in February for the second half of 2019. That removes a whole lot of pressure.

But for a long time the business has been on a seemingly inevitable trajectory where falling advertising revenues and circulation income from declining sales of its papers have made its chances of continuing to make good money for an owner slight to nil. It has pared back its business and fixed costs over those years (for example, there were once 700 editorial staff).

Something has to change. And the change of ownership won’t be enough. Boucher told her staff on Monday her purchase would not be a “silver bullet”, and it won’t. The pandemic and collapse of business activity and advertising spending has smashed all advertising-reliant media businesses. Stuff advertising income “more than halved” in the early weeks of the lockdown, leaving the company and its industry in what Boucher told Parliament’s epidemic response committee was “an existential crisis”.

From day one, next Monday, the vehicle she is using to buy Stuff will hold all its liabilities – staff costs and obligations, leases, contracts and importantly, any debt. Proceeds from the sale of subsidiary Stuff Fibre to Vocus are headed to Nine over the next three years. And Nine retains one big property, the print works at Petone.

What can Boucher do as owner that Boucher could not do as employed chief executive to turn Stuff’s fortunes around, and quickly enough to make the big media beast sustainable? First, the hiatus over the past 18 months as Nine tried to offload Stuff but failed to find a buyer, had in itself held back the company from doing what it might to make radical change. And that hiatus followed a two-year plus hiatus as Stuff and NZME attempted, in vain, to convince the Commerce Commission, High Court and Court of Appeal to let them merge.

So she will be able to play what is ahead of her, unencumbered by corporate overlords. Plans she and her team have worked up might have a faster track to implementation, and any potential gains gathered sooner than later.

In a note to staff, Boucher said: “I have been looking forward to the day the protracted uncertainty around our ownership would come to a conclusion so we could focus on building for the future. A couple of weeks ago, once it became clear that the NZME bid was not going to progress, I spoke to Nine CEO Hugh Marks to discuss a management buyout.

“My plan is to develop an ownership model which will give staff a shareholding stake in the business. It will take some time to work through how best this might be structured, and I look forward to providing you with more information as we develop those plans.”

The fact of New Zealand ownership will help Boucher and Stuff in seeking support from the Government as part of its economic recovery programme. It was well understood that Communications Minister Kris Faafoi and Finance Minister Grant Robertson would not pour financial support into an Australian-owned private company that could cut and run from this market at any time. The same reluctance remains for overseas-owned MediaWorks and NZME, which has a share register dominated by Australian investment funds.

So if the need arises, Stuff under local ownership would be well placed to seek help.

In a minor way, its new New Zealandness will do it no harm in its recently-launched fundraising campaign for donations from readers to support its journalism. The risk of money leaking across the Tasman to corporate shareholders has receded.

Stuff will need to both offload some assets and cut costs. Boucher hinted as much, telling staff there would still have to be changes “both internally and externally” to allow the company’s journalism to flourish.

That could see a number of those 49 newspaper titles close or reduce their frequency of publication. Stuff sold or closed a swag of community titles two years ago. It has restructured its newsrooms in the regions and cut and re-shaped its specialist reporting functions. Still, the costs of printing and distribution, especially now the Covid crisis has cut local businesses’ capacity to pay for advertising, will weigh heavily.

Its rival NZME cut its workforce by 200 in response to the pandemic collapse. MediaWorks announced redundancies of 130 on Monday, largely from its radio/sales arms. Bauer closed all its New Zealand magazines at the cost of more than 200 jobs.

Stuff’s sale leaves NZME with nothing to show for years of internal strategising and external frustration and embarrassment. Its share price, which rose by more than a quarter when it attempted to bluff its way to winning Government and regulator acquiescence for its Stuff bid, has lost almost all that gain and settled back near record lows. It faces many of the same revenue, cost and debt issues as Stuff and needs its own bold answer.

Boucher starts the new life of Stuff with overflowing internal goodwill, doubtful income streams, sizeable monthly fixed costs, any debt payments and huge external expectations. She’s bought herself the chance to pull off an epic business salvation. And she’s bought time to find and/or reveal the capital funding Stuff will need to survive.