There’s A New European Media Baron – the UK’s David Montgomery -- and Like Media Barons Before Him He Is Judged On His Past Which Is Why Journalists In Germany, The Netherlands, and Now Norway and Denmark Are Not Happy

Montgomery has a long reputation in UK media as a severe cost-cutter. He was an established UK tabloid journalist, once editing the News of the World and he moved up to be CEO of the UK’s Mirror Group. He met a very public end to his UK media career when Mirror’s chairman basically fired him in a very public row in 1999 during the process of merging Mirror with the regional Trinity group (a merger Montgomery opposed unless he was given the chairmanship of the combined company). He walked away with a severance package of £1.35 million.

Not much was heard of him until he resurfaced in 2005 as head of Mecom. He first bought the Berliner Zeitung and Berliner Kurier from Holzbrinck for £53 million. The journalists at those newspapers knowing Montgomery’s reputation howled and protested but the German authorities passed the deal. They howled and hollered some more when Montgomery replaced the Berliner Zeitung editor without any staff consultation. Obviously, this leopard had not changed its spots.

He expanded his holdings by buying the number two newspaper in Hamburg, Hamburger Morgenpost, and then in April, 2006, he bought Dutch Media group LMG from Telegraaf Media for €200 million, an amount that many Dutch analysts thought was very high. He broke off talks in June with Telegraaf to buy a stake in the Wagener newspapers when the two sides failed to agree on terms.

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But his purchase of Orkla’s media properties has really set the cat among the pigeons. Orkla is a Norwegian conglomerate active in such diverse businesses as heavy industry to banking to food (it owns 40% of Carlsberg beer). It also happened to be Europe’s fifth largest media company with publications in Norway, Sweden, Denmark, the Baltics, Germany, Ukraine and in Poland where it is the second largest media group.

Probably its most famous newspaper possession is Berlingske Tidende, the daily flagship of the Berlingske media group in Denmark which it bought in 2002.

The main question is how does an over-the-counter UK media company with its shares at 51p pull off such a deal? Montgomery wants to raise about €435 million in a rights issue, raise about €300 million in debt and Orkla itself will take up to a 20% stake in Mecom. As part of the deal the Mecom corporate headquarters will move to Oslo.

The Orkla spin is that the deal actually strengthens its media empire and it has a minority stake in a company that is going places. Last year Orkla media made an operating profit of €53.3 million on revenues of €873 million, contributing 16% of the entire Orkla group revenues and 9% of its operating profits.

But Trond Giske, the Norwegian Minister of Culture, said after meeting with Orkla’s CEO Dag Opedal that he still was unsatisfied with the deal.

“I don’t think Orkla demonstrates social responsibility when they choose to sell Orkla to Mecom,” he said, and he wanted more information about how the group planned to run its Norwegian newspapers after a Mecom takeover.

Opedal said the negative coverage about Montgomery was “one-sided”. He had earlier said, “Mecom’s bid for Orkla Media is financially attractive for Orkla’s shareholders. Based on a total valuation, this is therefore the best solution.”

But Montgomery’s reputation is causing consternation in those countries where Orkla operates and even trade groups are getting in the act. The European Federation of Journalists says it is concerned that business interests are being put ahead of journalistic standards.

“We shall be seeking assurances that the new owners intend to maintain respect for quality and independent journalism as well as pushing ahead with social dialogue initiatives that have strengthened the group’s reputation in Europe,” according to Arne König, the EFJ chairman.

The Norwegian journalists’ union said Orkla had taken the “worst alternative” to grow the business. In Denmark, they fear the worst. “Rumor has it that Montgomery is aiming to earn some 20% of the amount he has invested – that can only be achieved by firing people and watering down the product,” according to Steffen Lilmoes, head of labor union representatives at Berlingske.

In the past Nordic media have enjoyed high salaries and not too many worries. But the Internet is changing the face of all that. In Norway itself VG, the country’s largest newspaper owned by Schibsted, has announced that up to 200 staff must go in the next couple of years as readers desert the tabloid for its online edition.

As for reputations, Montgomery is certainly going to be surprised at the salary most journalists in the Nordic area pull down. And as circulations decline can those salaries and staffing levels be continued? But it is very difficult to make changes – especially changes without consultation – and that is one of the culture lessons that Montgomery will learn fast upon moving to Oslo if his deal goes through.

But reputations can change. It was only 30 years ago that the name “Murdoch” was despised throughout the US media industry. After all, the man published those filthy tabloids that did nothing for the prestige of the American media. And yet today Murdoch is probably the most revered and most listened to name in the US media.

Can Montgomery pull of that type of change as a new European media baron? Doubtful, but if it could happen with Murdoch then it could happen with anyone.

Orkla Loans Montgomery €137 million So He Can Close The Deal - July 27, 2006

It has to be one of the strangest newspaper purchase deals of all-time. David Montgomery had trouble coming up with all the financing necessary to buy the Orkla group of newspapers, so Orkla lent him what he couldn’t come up with himself in order to close the deal....MORE