Axel’s Painful Breakup

The Briefing By Martin Peers

Smart money and digital media often clash, as evidenced by KKR's latest moves. After five years of holding a roughly 49% stake in German media powerhouse Axel Springer—parent of Business Insider and Politico—the private equity firm and the Canada Pension Plan are exiting the investment scene.

In reality, Axel Springer is splitting into two entities. KKR and the Canadians will retain around 85% of Axel’s lucrative classified ads business, while the media properties, including the prominent German newspaper Bild, will remain with the restructured Axel Springer. The new ownership will consist entirely of CEO Mathias Döpfner, vice chair Friede Springer, and Axel Sven Springer, the founder’s grandchild. It appears that KKR and the Canadians are securing the more advantageous portion of the deal.

Döpfner framed this restructuring as a dream come true, but others may view it as a potential nightmare. With KKR's support, Axel Springer previously acquired Politico for $1 billion, among other significant purchases. However, future acquisitions may be limited now that Axel Springer loses KKR’s financial backing and the stability provided by its classified ads division. Döpfner noted that the media sector only accounts for one-third of the current company’s profits despite generating half its revenue.

The media landscape is becoming increasingly brutal, with giants like Google, Meta Platforms, and Amazon dominating the digital advertising space, leaving smaller firms with dwindling resources. BuzzFeed, once a digital media darling, now struggles to maintain relevance, with its market cap lingering around $100 million. While both BI and Politico have subscription models that may offer some protection from advertising pressures, attracting new subscribers remains a challenging task.

Axel Springer recently announced a 30% revenue increase since the 2019 buyout, bringing total revenues to nearly 4 billion euros. However, it’s worth noting that a 30% growth rate over five years isn’t particularly impressive, especially given the acquisitions that likely inflated these numbers.

Döpfner, however, remains optimistic. In a message to employees, he emphasized plans for a media company that is "faster, more agile, and less bureaucratic" while aiming to "harness the power of artificial intelligence" ahead of competitors. This reflects a classic half-full perspective on the situation.

A Blow to Benioff

Salesforce CEO Marc Benioff is known for his fondness for Disney, frequently visiting its theme parks. However, Disney doesn’t seem to reciprocate that affection. According to The Wall Street Journal, Disney plans to discontinue its use of Salesforce's Slack work chat tool later this year, following an internal hack of Disney’s Slack channels.

This news is a blow for Salesforce, a major player in enterprise software that has heavily marketed its products. The company's purchase of Slack for $27 billion in 2021 is increasingly seen as an overvalued investment, and this latest development only adds to the concerns of Salesforce shareholders. Compounding matters is the timing, as this announcement coincides with Dreamforce, Salesforce’s flagship sales conference.