Axel Springer’s Got Bank: Now What?

Mathias Döpfner is now the CEO of a private, debt-free Axel Springer that has no outside investors other than Friede Springer, the widow of the company’s namesake, and said namesake’s grandson.

I said it back in September, but this is an enviable position for Döpfner.

Even better, it likely has a decent amount of cash on the balance sheet because of how the company was split. KKR and CPP took majority ownership of StepStone (recruiting platforms) and AVIV (real estate platform), and in exchange, Döpfner and Friede Springer got the media assets and, from what I hear, $1 billion to $2 billion in cash.

It’s a big range, but let’s say they have $1.5 billion on the balance sheet. What could they do with that windfall? Let’s break down some of its options.

The Wall Street Journal: Highly Improbable

The joke has always been that Döpfner would sell everything if it meant he could buy The Wall Street Journal. He missed out on his chance to get the Financial Times, so WSJ would be a major coup.

But the numbers are hard.

In News Corp’s fiscal 2024 financials, it reported that Dow Jones—of which WSJ is a part—generated $2.2 billion in annual revenue with $542 million in EBITDA—good for a 25% profit margin. Dow Jones has three parts:

• Consumer media (WSJ, MarketWatch, Barron’s, etc.)
• B2B professional information business
• Factiva (content aggregation subscription business)

Over the last couple of years, News Corp has faced activist pressure to split the business up. In 2022, Irenic estimated that the full News Corp business was worth $19.5 billion. Last year, I extrapolated and estimated that Dow Jones on its own was likely worth $11.5 billion.

And for good reason. First, that B2B information services business is high margin and has incredible revenue retention. Second, the brands in consumer media are strong (which is why Döpfner wants WSJ) and they don’t trade very often. Its value has likely only grown since that estimate.

But the chances that it can extract WSJ from Dow Jones are minimal. The reason I don’t say it’s impossible is because the Murdoch family is fighting over the trusts—rich people problems—and anything could happen if it blows up. But it would require either some great divestitures on Axel’s part or borrowing a ton of debt.

Morning Brew: Feels Incremental

The second move would be to invest more money into Morning Brew. When CEO Robert Dippell spoke with AMO earlier this year, he said something I fully agree with:

Morning Brew has an opportunity to be way more of a platform business than people understand. They saw us as a small business years ago that was being added into Axel Springer’s portfolio, and I think over time, we could end up being a much bigger part of that value than people probably expect.

The crux of the strategy boils down to Morning Brew acquiring B2B media companies and supercharging them with the main newsletter’s audience of over 4 million readers.

It repeats what Industry Dive did so well. It had a clean playbook, operations sat across the portfolio and the revenue team could sell on any publication. If Morning Brew can buy an independent brand, add its operations and revenue heft to it plus increase the number of newsletter subscribers, the business could see major growth here.

But is it enough for Döpfner? Unlike the Dow Jones acquisition dreams, this is very incremental. This sort of roll-up strategy could be smart, but it becomes particularly impactful if the business plans to sell Morning Brew because there is some multiple arbitrage at work. A business generating $1 million in EBITDA from marketing services could trade for 5x to 8x. Rolling a $1 million EBITDA business into one that is likely generating eight figures in EBITDA means that you could get a 10x+ multiple. That same $1 million that may have been acquired for $6 million could be worth $10 million simply because of scale.

The Washington Post: The Goldilocks Option

Axel Springer should approach Jeff Bezos and offer to buy a majority or all of The Washington Post. It’s big enough to mean something, but not so big that Axel Springer can’t pull it off. There are a few reasons why this makes sense.

First, for Bezos, this is a side hustle. I don’t know him, but I suspect he derives more pleasure from going to space than owning The Washington Post. On the other hand, news is all Döpfner does. That matters because focus can be the difference between succeeding and failing. Yes, Bezos has hired Will Lewis to run things, but it remains to be seen how much money he’ll be willing to lose before he ultimately gives up.

And those losses have been big. Last year, ad revenue totaled $174 million, down from $190 million in 2023, The Wall Street Journal reported. The business overall lost $100 million last year.

Axel Springer has the experience from running both its European newspapers and seeing what works and doesn’t at Politico and Business Insider in the U.S. You might ask, “Why does Axel need WaPo when it has Politico?” I’d argue that they could be complementary businesses, with The Washington Post attempting to become a more mainstream news outlet—akin to what The New York Times has accomplished—with Politico focusing entirely on Washington.

Second, Bezos and Döpfner likely see the world through a similar lens. Earlier this year, Bezos announced that the opinion pages for the Washington Post would focus on two topics: personal liberties and free markets. In 2023, Döpfner published a book called Dealings with Dictators: A CEO’s Guide to Defending Democracy. Politically, there’s some alignment there. That matters.

And third, it gives Axel Springer additional major exposure to the U.S. That is where the company wants to play, but finding the right assets can be hard. You want a nice balance of big enough to move the needle, but not so big that you’re borrowing a ton of money.

Bezos doesn’t even need to sell everything. He could retain a minority position and have Axel Springer manage the paper. The question is what it’s worth and for a business that’s losing as much money as the Post is, it’s hard to value. It’s likely worth more than Bezos bought it for—$250 million in 2013—but less than the $1.5 billion Axel Springer has.

Sadly, this is the part of the article where I’m making everything up. Valuations are emotional when dealing with assets like The Washington Post. It’s why deals like this, even if they make sense, are hard to pull off.