“What We Have Here Is A Failure to Communicate” -- No, Not Cool Hand Luke But The Daily Mail to Gannett And Others As The Northcliffe Regional Newspaper Group Is Taken Off the Table.

Philip M. Stone February 20, 2006

When the Daily Mail and Trust Group (DMGT) put the Northcliffe regional newspapers up for sale last November they let it be known they were looking for numbers in the £1.5 billion range -- about 11 times the group’s annual cash flow and reflecting a prosperous well-run entity. What it got was numbers in the £1.2 – £1.3 billion range -- not quite fire sale figures but certainly taking into account the current soft UK regional newspaper advertising picture. Result: DMGT says it is keeping the newspapers after all.

That came as a bitter disappointment to Gannett, the UK’s second largest newspaper publisher via its Newsquest subsidiary. Newsquest already operates 300 titles in the UK, and Gannett thought it had the edge in the bidding against private equity firms because it was willing to buy all of Northcliffe’s 20 paid evening titles, 28 paid-for weeklies and more than 50 free weeklies. DMGT shareholders didn’t like it one bit, either, dumping the stock with the share price falling 13% in one day.

None of the buyers had figured, apparently, that the DMGT was serious in achieving the numbers it sought and would pull out of the sale if the money wasn’t on the table.

Daily Mail Finance Director Peter Williams admits the advertising market is currently “soft” but in the long-term the group believes that situation will improve and that the price paid should take that into account.

But there could be more to it than that. There was great surprise when the group was put on the block. Viscount Rothmere, the group’s chairman, let it be known for family reasons that he found this a particularly distasteful thing to do (his grandfather’s brother was the 1st Viscount Northcliffe), but he relented in the name of increasing shareholder value. It could well be within the DMGT boardroom that there were those, including the chairman,  who took a very hard line that if the predetermined figure was not reached then no sale should be made because no sale was really wanted in the first place.

Williams still left the door open, however, for a sale at some later time. “If a business is worth more to somebody else than it is to us then we will look very carefully whether that is something we should do in the best interest of our shareholders,” he said.

One of the big questions now is what does Gannett do next? If the British purchase is really not on then does that mean it pays more attention to what is happening on its US doorstep with Knight-Ridder? Merrill Lynch said that Gannett always takes a very business-like approach to any purchase and just because one thing falls through is no indication it will do more elsewhere.

Meanwhile Newsquest continues its redundancy programs. It announced recently that some 60-70 layoffs in Glasgow and it is now looking at more layoffs as it consolidates several operations in England.

And while there may be some rejoicing among Northcliffe employees who feared that no matter who would buy them stringent cost-cutting would follow, it may be more of ”Better the Devil You know than the Devil You Don’t, but it’s still the Devil”. Northcliffe has announced it is ramping up its costing cutting programs.

Although Northcliffe is profitable, every title is said to be making money, its not enough profit, according to the company, and DMGT will now set out to prove to shareholders the group is worth more in their own hands than it would be from a sale.

So Northcliffe employees can look forward to what is going on with all the other major regional groups in the UK regional newspaper market – redundancies ("In many ways, that's a process that's happening already and has been happening in the last six to nine months,” according to Williams) and consolidation (presses in at least four cities will be closed down with that work consolidated elsewhere). 

Northcliffe, has operating margins around 18% -- the lowest of the major regional groups (Johnston Press has the highest at around 36%)  – but says it has concluded a review of operations and has identified some £30 million in additional savings.

And what might be deemed as poetic justice, while not looking to sell itself cheap in a down market it is on the lookout to buy rivals at knockdown prices.

The group says it believes it can increase profits also through closer links between its newspaper and online properties.

There’s probably a big sigh of relief by Trinity-Mirror and Johnston that no Northcliffe deal was done. If Newsquest had won it would have controlled about a third of the regional market and even though it may have flogged some titles afterwards it still would have been the UK’s largest regional newspaper publisher and a very formidable competitor.

But there can be no doubt now that the four major regional groups are doing everything they can to squeeze additional margins from their operations and job losses will flow for some time. Probably not a fun place to be working these days.

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