Finnish media holding Sanoma has put its Russian business up for sale. Possible buyers include the founder of Independent Media, Hearst and Bauer. Thus, the Finns are correcting the mistake made in 2011

On October 31, during a conference call with the management of the Finnish publishing holding, CEO Harri-Pekka Kaukonen announced that the company was ready to sell its Russian assets. This is part of a strategic reassessment of its business units that Sanoma is currently carrying out in the markets of Central and Eastern Europe, as well as in Belgium. According to Kaukonen, the holding is accumulating funds for the development of the educational literature segment in the markets of the Netherlands and Finland (the income of this segment is growing).

Sanoma Group

owns newspapers, magazines, radio stations, and television companies in 20 European countries. Sanoma Independent Media (SIM) is one of the largest publishing houses in Russia. It was founded by Derk Sauer in 1992. Sanoma bought it in 2005 for almost €150 million.

SIM consists of several legal entities. The largest of them in terms of revenue is Fashion Press, which publishes the magazines Cosmopolitan, Domashny Ochag, Esquire, Harper's Bazaar, etc. Sanoma owns Fashion Press in half with the American Hearst. United Press publishes Men's Health, Woman's Health, National Geographic, etc. It is wholly owned by Sanoma. Together with the Italian Mondadori, the Finnish company publishes the Grazia magazine, and together with Dow Jones (founder of The Wall Street Journal) and FT Group (founder of the Financial Times) - the Vedomosti newspaper (legal entity - Business News Media CJSC, equally owned listed owners).

Sanoma Vice President Robin Janssen told Forbes that the corporation has “begun deep strategic changes,” including re-examining Russian business opportunities and focusing on the education business and multi-channel media in Holland and Finland.

Who might be interested in Sanoma's Russian business? “I will claim Sanoma’s share in Vedomosti.” I hope I will be able to come to an agreement with the Finnish company,” said Derk Sauer, founder of Independent Media and now CEO of RBC, in an interview with Forbes.

Sauer considers the American corporation Hearst, which owns half of this company, to be possible buyers of the magazine part of SIM, especially Fashion Press (publisher of Cosmopolitan, Domashny Ochag, Esquire, Harper's Bazaar and others). Hearst has an option to buy the second share. In addition, under the terms of the shareholders' agreement, if Hearst does not like the potential buyer, it can revoke the licenses to publish the named brands. One of the founders of Independent Media, vice-president of the RBC media group Elena Myasnikova, considers this development of events likely, specifying that it depends on whether Hearst has the money for the purchase. The second possible candidate for purchase is the German Bauer (Joy, “Planet of Women”, “Secrets of the Stars”).

“Sanoma has had problems with business and debt over the past years. This hindered investment in business development, including in Russia. I consider the decision to focus on the main markets to be the only possible one in this situation and absolutely correct for both Sanoma and the Russian division, if the new buyer invests in the development of the company,” says Myasnikova.

The situation in the publishing house business is indeed not rosy. At the end of 9 months of 2013, revenues fell by 7%, to 1.7 billion euros, and the company's loss amounted to 240 million euros . The reason for its appearance was a one-time write-off of the amount of 317 million euros, the main contribution of which was made by the revaluation of goodwill and intangible assets in the Netherlands (268 million euros) and Russia (24 million euros).

According to Sauer and Myasnikova, the write-off of losses in Russia is due to a revaluation of the costs of purchasing Independent Media in 2005.

If Sanoma had not taken the €317 million write-down, its media business would have posted an operating profit of €24.3 million in the third quarter of 2013 (compared to €23 million in the same period last year).

Sanoma does not separately disclose the performance of its Russian business. In the report, the company notes that in Russia and the countries of Central and Eastern Europe, the operating profit of its structures increased, despite a drop in revenue, by almost 12% due to cost control. Here, in the third quarter of this year, Sanoma earned 41.3 million euros compared to 46.9 million euros for the same period last year. For the nine months of 2013 - 128.1 million euros compared to 146 million euros for the same period last year.

The current difficulties are directly related to the events of two years ago: in 2011, Sanoma acquired the television business in Belgium and Holland for 1.23 billion euros, after which its net debt at the end of the year almost doubled to 1.6 billion euros (with revenue of 2.4 billion Euro).

According to Sauer, the purchase of a television company, the operating results of which were significantly worse than expected, is a “huge mistake” for Sanoma, which is associated with a shortage of working capital and losses that it is gradually writing off.

"The Russian part of Sanoma's business is the only thing they can get something out of," says Sauer. Elena Myasnikova shares a similar opinion. When asked if she had the feeling that successful Russian assets were paying for mistakes in other markets, she answered in the affirmative.

Paying for a “huge mistake”: why Sanoma is selling off Russian assets