My thoughts and action as shareholder of Singapore Press Holdings after SPH's non-profit move

Update:  On 2Aug2021, Keppel Ord announces that it is proposing to acquire Singapore Press Holdings (SPH) through a $3.4 billion privatisation offer.

Under the offer, SPH shareholders will receive $0.668 in cash, as well as 0.596 Keppel Reit units and 0.782 SPH Reit units per share.

On hindsight, my sale of SPH shares was a wrong, painful move. Time for self reflection.

---------------

On Thursday morning (6May2021), I was surprised to see trading of Singapore Press Holdings(SPH) shares halted pending an important news announcement. As a shareholder, I was positively excited. Based on past experience, when a stock has been on a run-up in the months before the trading halt, the news will usually be a good one😀.

I eagerly awaited for the "good" news. 

Soon, I received a news notification on my mobile phone. The word "not-for-profit" in the headline dashed my hopes. Investing and "not-for-profit" certainly do not go well. No investor will want to have anything to do with "not-for-profit" since the objective is to earn profit.

SPH is going to restructure its media business into a not-for-profit entity. Initially, I was expecting that shareholders will get something out of the deal. Normally, when a company spins off a major business, shareholders will get something back from the sales proceeds. After all, we are owners of the business. In this case, we get nothing. It is actually worse than that. SPH is not selling the media business. SPH is giving away the media business and on top of that, giving away cash and some of her own shares to the new media entity. Not only are shareholders losing a core business without getting compensation. We have to pay extra for the loss. Furthermore, SPH will assume certain liabilities, cost and expenses potentially arising from the Proposed Restructuring. I do not know exactly what these liabilities and expense will be at this moment.

 https://investor.sph.com.sg/newsroom/20210506_102600_T39_AYO9VPTD5YJANBTE.3.pdf

It is a bad deal for shareholders. It does not look like a normal corporate restructuring deal. It looks more like a rich man paying expensive divorce fees. Is this "wife" really such a bad one?

SPH's investment portfolio of properties and stocks were bought using the cash thrown up by SPH media business during the good years. Without Singapore Press Holdings of the past, there won't be any "Singapore Property Holdings" of today. Throughout its long history spanning a few decades, SPH's media business has been profitable and only recorded its first-ever loss of SGD$11.4 million last year. It seems like this wife has been a wonderful partner throughout most of the marriage except in recent years. Is the husband getting too hasty in declaring divorce?

As a customer of SPH media, I know the media products are not dead or even dying. I still read the news everyday. So does everyone else around me. Nobody I know has stopped reading the news. The product is still very much alive. As long as a business is creating a product that customers want, it will not die. What has changed is the medium of delivery from physical print to digital. 

New York Times, The Economist, Financial Times, Wall Street Journal, Washington Post are still surviving fine as private for-profit entities. In fact, the shares of New York Times (NYT) even traded at an all-time high just a few months ago. Temporary pain during the digital transition is expected naturally. Cutting off the business only after 1 year of losses seems premature to me.

It is fair that shareholders who make bad investments lose money. The amount of loss should be fair. Since the media business is to be spun off, it is a reasonable request from shareholders that the business they own be sold off to recover some value and not be completely gifted away. 

As a Singaporean, I can understand the strategic importance of SPH's media business to Singapore. As shareholders, the objective is to make money. Companies which are asked to do national service and demand monetary sacrifices from shareholders will naturally be shunned by shareholders. This is one reason for the 15% price drop on Friday(7May2021). 

The other incident that has captured national attention is Umbrage. A reporter asked 2 questions at the press briefing. 

SPH CEO took umbrage at the first question which I thought was reasonable. The reporter asked whether the restructuring would result in an emphasis on editorial integrity ahead of advertiser interests and the CEO was unhappy that the reporter implied that SPH has conceded to advertisers. If you take money from someone, you are biased to please him. If the new not-for-profit media entity is less financially dependent on advertisers, then it naturally follows that advertiser interests will have less influence on editorial integrity. 

100% editorial objectivity is not possible as long as a news media is dependent on external funding sources. Yet, if there are no external funding sources, it is hard to survive. Therefore, 100% editorial independence is not realistic. As a reader who desires objective editorial content, I would like to see the new media entity dependent on a diversified pool of funding sources with no single dominant source. Nobody's behavior can be completely independent from his paymaster. The best scenario for objective, independent behavior is to ensure no single paymaster dominates.

The reporter's second question asked whether the corporate initiatives to improve media business has failed. Here comes the stab. She asked WHO was responsible for the failure. This was a unnecessary, rude and non-constructive question. 

The second question was unnecessary because the answer is obvious. The buck stops at the person who is paid the most buck. Of course the CEO is responsible for the failure. As a shareholder, I am ok with CEOs failing occasionally because it means they are not afraid to take risks. No risk, no gain.

The second question was rude because she is asking who failed to the person who failed and it is obvious who failed. I think many people would take personal umbrage if they were asked this question.

The second question was non-constructive because if you want to get good answers after something has failed, the first question to avoid asking is who failed. The moment you asked who failed, the people on the ground who are likely to have the best answers to fix the problem will get defensive. Transparent, good answers are not going to come from defensive people. No surprise the reporter did not get any answer for her second question and umbrage was taken on her first one.

Although I felt that the second question was unnecessary, rude and non-constructive, I still have to thank the reporter for asking the second question. Shareholders seldom get to see their top managers at work. Seeing how the managers react to difficult questions in public is useful. 

Failures are too expensive to waste. The first step to not wasting failures is to admit one has failed. It is easier for people like me to admit failure than people who have achieved very high station in life. Since growing an ego is natural as one climbs up, I guess it is harder for successful CEOs of listed blue-chip companies to admit failure.

As a side-note, I hope our decorated SAF generals will retain some humility as they attain the highest ranks in military. When a scholar has his career mostly planned out for him and encounters little failure on his way up, it is easy to grow an unhealthy ego. Like every Singaporean man, I am a soldier and so will my sons. Generals with an ego are vulnerable to psychological enemy tactic like 激将法. In the event of war, I do not want me and my sons to die in meaningless missions because an egoistic General was agitated by the enemy into making foolish, emotional actions. As a civilian, I can quit my job if I disagree with the actions of the CEO. As a shareholder, I can sell my shares if I disagree with the direction taken by the CEO. As soldiers, we Singaporeans do not have the freedom of choice to exit. Our lives are in your hands, generals.

Investors who bought SPH with the hope that its media business is on the road to recovery no longer has a good reason to hold the stock. Singapore Press Holdings has become Singapore Property Holding. Investors who are interested in property stocks have many alternatives to choose on SGX and HKSE. Several of them pay good dividends, trade at attractive discount to book value and have long experience in the property business. The new SPH has plenty of competition as a property play in the stock market.

SPH enjoyed a price run-up since the beginning of 2021. The short-term minded traders who hopped on early for the ride will be looking for a reason to take profit. The announcement in the press briefing gave them the perfect reason to realize their profits. This group of profitable traders will be running for the exit when the market opens. I had a bad feeling on Thursday night that the price will crash next morning.

I happened to be one of the lucky shareholders who enjoyed some profit cushion on the day when the bad news was announced. I am no longer a shareholder today. If you are a shareholder, please do not let my actions influence you because I have no idea whether I will be right or wrong. Furthermore, I will always be biased in favor of my own actions. Your decision to sell should be dependent on the reason you bought. You yourself know best.