NZME owns the NZ Herald, NewstalkZB, BusinessDesk and OneRoof; inset: NZME chair Barbara Chapman and shareholder Jim Grenon.
Auckland businessman Jim Grenon’s full letter to NZME, outlining his concerns around the operation, governance and finances of the media company, has been released to the NZX by the firm – with the billionaire saying he does not propose to be an “average, passive board chair”.
The letter is highly critical of the company, saying the operational performance of the two core businesses – publishing and audio – “has been mediocre, to sliding” for the past eight years, despite a period of temporary gains during Covid.
The letter takes aim at the company’s public disclosures; “a consistent pattern of overpromising and under-delivering since Covid”; cost discipline including the chief executive’s salary and other costs; journalism; and general staff morale.
“I do not propose to act as an average, passive, board chair,” Grenon says in the letter.
“I propose to be very active at the management level, leading a board and team that will delve into the operational details so as to be able to challenge management.”
Grenon later in the letter says, “The drive to make money for the shareholders is going to be notched up. The emphasis on social leadership will be notched down. The objective is to act like an owner-operator”.
NZME chief executive Michael Boggs told NZME staff on Friday afternoon the company would not respond to the points in the letter until it released its notice of meeting ahead of its annual shareholders’ meeting, to be held on April 29.
“However, what I can say is that we can all be proud of what we’ve achieved as a company. As I said on the call I had with [NZME’s] leaders yesterday, we have outperformed all our key Australasian media peers over the past five years in both share price performance and total shareholder returns.
“That’s something to be hugely proud of. We’re in the top 20 of 179 NZX-listed companies in terms of our performance. We’ve strengthened our market position across key areas of our business and we’ve advanced a strategic plan to unlock OneRoof value for our shareholders, and we’ve delivered cost savings. I look forward to sharing more key highlights about our performance and also details about our strategy in our notice of meeting.”
Grenon is seeking to become chair of NZME at the company’s annual shareholders’ meeting and for shareholders to vote for his three other nominees – lawyer Philip Crump, private equity businessman Des Gittings and retail industry executive Simon West. His proposal is to retain one of the existing board members as a fifth director.
In his letter, Grenon says some of the other board members might assist with “technical work” in the leadership of the company.
“This approach to governance is the only realistic way to ensure NZME gets a fresh set of eyes questioning every aspect of operational effectiveness and shareholder value creation,” Grenon wrote.
NZME owns the NZ Herald, Newstalk ZB, property platform OneRoof and a suite of entertainment radio stations and regional newspapers.
Grenon says he believes the value of NZME’s stock is being driven by two factors: “One is the standalone value of OneRoof, which many seem to think is $0.50 per share or more, and the other is the dividends (which are also somewhat of a proxy for the success of the operations). The disclosure on these two critical elements is, in my opinion, lacking or even misleading.
“OneRoof is thought to have considerable earnings upside, as well as current value on sale. However, it is not clear how much OneRoof, which isn’t yet generating the projected earnings, relies on the core businesses. It is also easy and tempting to allocate less costs to it, such as the promotion supplied by the core businesses. The reason it is tempting is because positive results from OneRoof would likely be viewed, by the market, as being worth a much higher multiple than the same incremental profit in the core businesses.
“I think this should be very clearly disclosed in a way that has some third-party verification. NZME recently announced the commencement of a strategic review of OneRoof to investigate potential value realisation opportunities. The proposed new board supports this and will be pushing to maximise the OneRoof value for shareholders by some type of transaction, most likely by transferring it out to shareholders, that allows those that value it most to participate in it as a pure play. At the same time, this will make the core businesses their own pure play. Typically, pure plays result in maximising value ...”
The 11-page letter – in which Grenon outlines “what I see as years of poor performance, bloated costs and weak public disclosure” – covers a broad range of topics. The letter is produced in its entirety below.
“NZME’s wage costs approach $150m a year, with 528 employees (of their approximately 1200) earning greater than $100,000 and 93 earning greater than $200,000,” he writes.
“There are also high levels of employee turnover with, on average, over 200 new employees added each year for the past three years. That does not suggest a happy work environment and we want to improve on that.
“I have noted the previous and current cost reduction exercise seems to be reducing the lower-cost staff. At the top end, the CEO compensation is much too high relative to the size and complexity of the business, averaging over $2.25m per year for the past three years.”
He went on to say: “We expect to find significant cost reduction in the high-cost employees and executive ranks. It is easy to understand why existing management has been resistant in this area. We also hope to find many in the existing NZME staff that can work and thrive in the new paradigm, which will provide opportunities for some to advance.”
He also said, “We want NZME to be a good place to work, and to have pride in its product, but the drive to make money for the shareholders is going to be notched up. The emphasis on social leadership will be notched down. The objective is to act like an owner-operator.”
He said public disclosure was weak “with a slant that I interpret as supporting the status quo”.
“The starting point is that NZME frequently focuses on ebitda, when this number is not very meaningful in NZME’s circumstances. First off, there are several different versions of ebitda used and it isn’t always clear, particularly when results are discussed for the different businesses, which ebitda is being used.”
NZME, in a statement to the NZX, said: “Despite Mr Grenon submitting the letter to be included in the notice of meeting, he has disclosed certain parts or all of it to select shareholders and some media.
“The NZME board is committed to transparency for all shareholders and is concerned Mr Grenon’s approach to disclosure is inconsistent with this,” said the statement, authorised by chair Barbara Chapman.
“As a result, the NZME board has decided to release the letter to the market now, ahead of distribution of the notice of meeting to ensure all shareholders have access to it.”
The statement said the NZME board was “focused on protecting shareholder value and ensuring shareholders have all accurate and relevant information in order to consider the resolutions to be voted on by shareholders at the annual shareholders’ meeting”.
It recommended shareholders read the notice of meeting and accompanying materials carefully when they became available before taking any decisions in relation to the resolutions to be voted on.
“NZME will, in the notice of meeting, advise shareholders of NZME’s response so they have a complete picture of the NZME board’s position. A detailed and structured process is under way to assess the implications for shareholders,” the statement said.
On journalism, Grenon wrote: “My intention is that more quality content should be produced, not less.
“This is needed to attract new subscribers. Public trust in the NZ Herald has declined by over 25% since 2020, according to a recent report by the Auckland University of Technology research centre for journalism, media and democracy.
“Furthermore, this AUT report also illustrates a trend forming where individuals are not financially supporting the NZ Herald as much as they previously were and are increasingly more willing to support other news sites.”
On a more positive note, he applauded the progress NZME had made in its audio division with “industry-leading audience ratings”.
“In contrast to NZME’s recent announcement to ‘set a new tone and build positive social momentum for New Zealanders’, our proposal will lift the company’s journalistic standards, resulting in the production of higher quality news content, characterised by independent, trustworthy and balanced perspectives.
“There will also be material for entertainment value as well. Then all the content will be used in any number of ways to generate profit.”
Editor-at-large Shayne Currie is one of New Zealand’s most experienced senior journalists and media leaders. He has held executive and senior editorial roles at NZME including managing editor, NZ Herald editor and Herald on Sunday editor and has a small shareholding in NZME.
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