Al-Fayed adds pounds 10m to his bid for the Observer

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The Independent Online

Media Editor

Liberty Media, owned by Mohammed al-Fayed has upped its bid for the Observer newspaper to pounds 25m from pounds 15m, putting pressure on the Guardian Media Group to reconsider its plan to keep the money losing title.

The earlier bid, put to the Scott Trust, the charitable organisation that controls the Guardian, was turned down 10 days ago, following a brief discussion by the full board.

The new offer, made late last week by Stewart Steven and John Dux, Mr Fayed's senior media executives, comes close to matching the amount the Guardian paid for the Observer in 1993. Since then the paper has lost as much as pounds 20m, and its circulation has dropped below 500,000.

Mr Fayed is known to be keen to own a national newspaper. He has already been thwarted in attempts to buy Rupert Murdoch's Today and to launch a Sunday paper of his own. Both plans were shelved indefinitely last month.

He hired Mr Dux, formerly managing director of Mr Murdoch's News International, and Mr Steven, former Editor of the Evening Standard, to head up his new media venture last month, and has said he will not interfere with their management.

Acquisition of the Observer by Mr Fayed would be a ironic twist for the newspaper, since its previous owner, Lonrho's Tiny Rowland, used the newspaper extensively to lambast Mr Fayed during his 10-year war of words with the Egyptian businessman.

The Guardian is believed to be resisting the higher offer, though the board is split between those who want to bail out immediately now and those who want to give editor Andrew Jaspan more time.

The Observer's losses have raised concerns at the Guardian that financial difficulties at the sister publication could force cost cutting across the entire publishing group.

Early this month, Guardian editor, Alan Rusbridger, announced a programme of voluntary redundancy aimed at cutting about 12 jobs.

He has insisted that there is no connection between staff cuts and the losses at the Observer.

As it is controlled by a charitable trust, the Guardian Media Group is forced to meet the operating losses at the Observer out of general resources, relying on money making publications such as the Manchester Evening News.