Media: Time for bidders to take a good hard look at The Mirror

Who will win the battle to control Britain's leading left-of-centre tabloid?

LAST FRIDAY'S announcement by Stephen Byers, the Trade and Industry Secretary, that regional newspaper group Trinity would have to dispose of The Belfast Telegraph and three other Northern Irish newspapers if it wants to buy the Mirror Group, has obviously come as a surprise to the potential bidder.

Since its statement on Friday that it was "reviewing the situation", Trinity's management has gone to ground with its calculators to work out how its bid price of 270p - valuing the group at pounds 1.6bn - may be affected by the decision, and whether it is still a bidder.

The City had been expecting an immediate announcement from Trinity that it had agreed terms with the Mirror board.

But the Belfast Telegraph titles are the most lucrative part of the Trinity empire, providing 20 per cent of the Group's pounds 84m profits last year. It is also the place where Ulsterman Philip Graf, Trinity chief executive, began his career and importantly, provides a model for how many of Trinity's other titles should be run: it operates with margins of 40 per cent.

Furthermore, the Belfast Telegraph group's value includes Northern Irish printing contracts for The Sun and The Mail. The synergies of also printing The Mirror make it more valuable to Trinity than to potential buyers - particularly as the lucrative Sun and Mail contracts have clauses which mean they can lapse under any buyer. It may be for this reason that Trinity is denying that there has been a rush of newspaper groups interested buying the Telegraph. It is trying to keep its options open.

The Competition Commission would have given the Trinity bid the go-ahead as long as it just disposed of the Mirror Group's Belfast News Letter. However, Mr Byers ruled that the nationalist Irish News could be threatened by the commercial dominance of the Mirror's national titles when combined with the Telegraph. The concern was that together they could provide discounts to advertisers who advertise in The Mirror and the Telegraph and such a "joint sell" would have taken ads away from the News. The decision to protect the News, which gives a moderate voice to the nationalist community, is being seen as a political rather than a commercial consideration. That, after all, is what Trade Secretaries are for, otherwise the Competition Commission could make legally binding decisions on its own.

Trinity is trying to decide whether the Byers conditions still make a deal worthwhile, but Mirror Group still seems to be a more attractive target than it was when Trinity first began talks. Debt has been reduced through the sale of a stake in Scottish Television and by the sale of the old Mirror building in Holborn, in central London. L!ve TV is up for sale and the flagship daily paper should increase sales year-on-year in 1999 for the first time in 25 years. The Mirror's new positive news formula and its re-born campaigning instinct has at last given it a distinctive positioning away from The Sun.

City analysts are advising that Trinity can talk up the sale of the Belfast Telegraph to a price of pounds 250m, which would help it with the pounds 300m-plus debt that it would take on by buying the Mirror Group - Maxwell-era debt being the historical reason for The Mirror's under-performance.

The other piece of Mirror history to emerge last week was the confirmation by David Montgomery, former chief executive of the group, that he is talking to venture capital financiers about raising the money to buy the company. He would have to deal with the chairman and board who ousted him, making many in the City think that he would need to come up with a very high premium to buy the company out from under Trinity and the other putative bidder, Regional Independent Media, publisher of the Yorkshire Post.

Trinity and RIM's ability to extract synergistic savings from The Mirror means they are more able to justify a higher price for the Mirror Group than Mr Montgomery with his plan for it to remain as a stand-alone newspaper company. The fact that the share price of Mirror Group has risen by more than 50 per cent since Mr Montgomery's departure in January, would seem to indicate that the City agrees with the board about his ousting.

Mr Montgomery's supporters would see it differently. They ask why the Mirror Group should wish to be taken over by a smaller company. They believe it is because Sir Victor wishes to be chairman of a bigger group. They also feel that Trinity is getting the company on the cheap. Some City analysts are trying to talk the price of the company up above 300p a share. At the moment, Trinity's cash and shares bid has been helped by its own shares rising.

There are persistent rumours that Mr Montgomery's bid may end up joining with RIM, based on his friendship with Chris Oakley, the head of RIM and a former Mirror director. The DTI's decision on Trinity has undoubtedly been a fillip to RIM, which has been conspicuously quiet about its intentions and must be assumed to be working on a bid.

Who's the Fairest of Them All?

DAVID MONTGOMERY

Former chief executive of Mirror Group, ex-editor of Today and News of the World.

Strengths: In-depth knowledge of Mirror Group and all its titles.

Weaknesses: In a world of media mergers, Montgomery still gives no sign of a strategy for growing Mirror Group. The cost-cutting he's good at has been done.

REGIONAL

INDEPENDENT MEDIA

Publisher of the Yorkshire Post, backed by venture capital firm Candover.

Strengths: Unlike Trinity, need sell no titles to meet conditions. Chief executive Chris Oakley, above, is a former Mirror Group director.

Weaknesses: 300p a share for Mirror Group could prove too steep.

TRINITY

Publisher of more than 100 regional newspapers, such as the Belfast Telegraph and the Liverpool Echo.

Strengths: Has grown rapidly under chief executive Philip Graf, above, by concentrating solely on regional newspapers.

Weaknesses: Must choose whether to swap the Belfast Telegraph for The Mirror and a new market.