For The Second Time In Two Years UK Regional Newspapers Are Taken Off The Market Because Buyers Reckon Print Is Not The Great Money Earner It Once Was

Philip Stone October 4, 2007

British Newspaper Group Trinity-Mirror (TM) said last December it would sell 138 of its 240 regional newspapers and shareholders could expect around £500 million - £600 million ($1.02 billion – $1.2 billion, €720 million - €865 million) returned to them. But that was then, the reality nine months later is that prices came in far lower than expected, not everything got sold, and the gross totaled only £263 million ($536 million, €378 million).

During the sale process the company kept lowering the expected return – it had last said £450 million in August, and shareholders have been voting with their feet – the shares are down 30% since June. The unsold newspapers have been taken off the market and once pension obligations and transaction costs are settled shareholders will be lucky if they see £200 million.

The media has been none to kind to CEO Sly Bailey about all of this. The Business  headlined its story over a negative Dow Jones report “New Broom Needed at Trinity Mirror” with DJ newswires media writer Jessica Hodgson saying about Bailey, “It’s time Trinity-Mirror’s board and shareholders found somebody to run the company whose vision extends beyond cutting costs from an already threadbare business”

Roy Greenslade, who writes for The Guardian and is considered the UK’s premiere media writer, has been slamming TM for months, and he wrote when hearing that the sale had failed to fulfill its promise, “I say again what I said at the outset. Trinity Mirror is a basket case. Its board and its senior management have no real idea what to do with it.”

Although the recent credit crunch didn’t help, the failure to sell all the papers, and get what they really should have gotten for those they did sell, really boils down to how much those who own newspapers think they are worth against those who are willing to buy, who realize that margins are growing smaller and smaller, who know how much they are going to have to invest in digital infrastructure, and are factoring that into the price they are willing to pay. 

So, what is a seller to do in such a situation? Well, TM could do worse than look at what rival Northcliffe did when it didn’t get the price it wanted for its regional newspapers.  Around 18 months ago Northcliffe Regional Newspapers, owned by the Daily Mail & General Trust (DMGT) had a “For Sale” sign posted looking for around £1.5 billion. The bids came in around £1.2 billion to £1.3 billion so DMGT said “no sale.”

Since then it has cut costs viciously – in September it announced meeting its annual target of a £45 million in savings achieved via  lower publishing costs, down 3%, and a 5% staff reduction  – it  sold a couple of titles (Aberdeen Press & Journal), invested heavily in its online operations,  and all of this was helped by the advertising drop stabilizing, down just 1% on the year but with the trend encouraging with revenues over the past three months up by 2.4%, having also been up by 0.3% in the quarter to June.

All of that apparently gave the group confidence to actually expand and to everyone’s great surprise it bought 25 regionals that TM was flogging, paying £64.145 million which represents a multiple of 1.9 times their 2006 revenues.

By comparison TM sold its Racing Post newspaper and assorted sports publications to an Irish investment group for £170 million – some £30 million less than had been previously talked about – but the purchase price represented a multiple of 3.4 times 2006 earnings, so if that was a low price, was that a steal for DMGT in buying those 25 regionals at 1.9 times earnings?

As for Northcliffe, why did it expand? For one thing the 25 newspapers it bought from Trinity-Mirror generated a £7.3 million profit in 2006 – in other words they are healthy – and managing director Michael Pelosi says Northcliffe has transformed itself dramatically since its own sale was called off.

Bailey says TM, including those newspapers taken off the market, is now going to concentrate on multi-platform delivery systems, and to prove the point on Wednesday she poached Max Alexander, the chief executive of Thomson Directories, to take up the new role of managing director of new ventures and strategy, with responsibility for analyzing and recommending business opportunities for Trinity Mirror's multi-platform media operations.

Giving a clear statement where the company’s priorities now rest, she said, “Max will work closely with the senior management team across the group as we seek to identify new opportunities across audiences and markets. He will play a pivotal role as we continue to build a multiplatform media business and we look forward to working with him as we drive through our digital growth."

That will come as some relief to the National Union of Journalists (NUJ) who on Wednesday issued their own statement slamming TM. “It is hardly surprising after having failed to properly invest in the titles for many years, and having cut editorial staff again and again, that the papers have not attracted sufficient interest from potential buyers,” according to  NUJ general secretaryJeremy Dear. "Trinity Mirror should stop asset-stripping and start investing, building on high-quality, local journalism and the strong brand names the titles have in their communities."

So, based on the UK experience, it seems buyers are certainly aware that print alone margins are not going to improve much if at all within the near future and massive investment is necessary to improve print’s online credentials. Which is why the gulf expands between what an owner sees as print’s value today, and what the buyer sees as the investment need for tomorrow.

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