He likes a bit of a scrap: But has Kelvin MacKenzie met his Waterloo at Highbury?

Kelvin MacKenzie, former editor of The Sun, former chief executive of talkSPORT broadcaster The Wireless Group and currently boss of beleaguered magazine publisher Highbury House, is used to calling the shots. As an editor, his views - reflected in headlines such as The Sun's "Gotcha" after the sinking of the Belgrano during the Falklands War - were uncompromising.

His methods as a businessman are similar, say media bankers and analysts, and have not always won him friends in the City. "He is irreverent and ploughs his own course," says one media analyst. "If you sign up to the Kelvin roadshow, you sign away your right to object. Kelvin says 'this is my show - this is how I work'."

But the wheels could be about to fall off. Last week, shares were suspended in Highbury House - which publishes a wide spread of magazines from lads' mag Front to Practical Woodworking - after it announced that talks with its banks about a debt-for-equity rescue deal had been terminated.

MacKenzie had only installed himself as executive chairman in September, after buying around 20 per cent of its shares, with plans to revive the fortunes of the heavily indebted group. Now, Highbury House is teetering on the brink of collapse, and its survival as a going concern depends on the banks' continuing goodwill. So is MacKenzie's magic deserting him just when he needs it most?

For a company run by a man so well known in the media industry, Highbury House is keeping a remarkably low profile. It parted with its financial PR firm six weeks ago and has not appointed a replacement. There is no press officer at Highbury House, nor a proper company profile on its spartan website. Only one analyst - who works for Highbury's broker, Bridge- well - covers the stock. Calls to MacKenzie's office by The Independent on Sunday were not returned. One PR friend of his says that even if his own services were sought, he wouldn't want to get involved. "It would only ruin my Christmas," he half jokes.

A glance at the group's last financial results, for the six months to the end of June, would help explain its shyness. It has a market value of £2.2m, compared with more than £250m at its peak, yet as of the end of September, bank borrowings were £29.5m. The borrowing costs and interest charges totalled £5m alone in the first half of the year.

Following the sale of many of its magazines, Highbury House's remaining computer games and specialist consumer titles made an operating profit of £597,000 in the first half - hardly enough to get it out of its current predicament. Its loan promises have been breached, which means the banks can call in their money when they want - which would pull the plug and push the company into administration.

None of this is MacKenzie's fault. Highbury House has a chequered history. It began life when Harrington Kilbride, the publisher of Royal Dempsters and a series of specialist sporting titles, was set up in 1975. The firm was renamed in 1995 after the part of north London where it was based. New chief executive Ian Fletcher, founder of the Yellow Advertiser local newspaper group, turned it into a profitable operation in two years after a wave of acquisitions.

After buying buying rival publisher Nexus in 2000 to double the size of the group, Highbury House bought consumer magazine company Cabal Communications for £10m in 2003, bringing in titles such as Front and The Real Homes Magazine.

Fletcher topped this a few months later with the acquisition of Paragon Publishing, a computer and video games magazine group (publisher of Cube, among others), for £32m from private equity group 3i, which doubled its money in four years with the sale.

But the costs began to rack up, with the group turning in a loss of £25.7m in 2003. Crucially, Highbury House's plans to sell its business-to-business publishing division - for a mooted price of £25m - to balance the purchases of Cabal and Paragon, fell through. The unit was eventually sold earlier this year for around half the original price tag.

Analysts say the group expanded too quickly and did not properly integrate the new magazines and their back-office functions - advertising departments, printing and distribution arrangements and administration. Iain Daly at Bridgewell, the house broker, says: "Previous management put in cash and paid quite high prices, and because the company was so focused on expansion by acquisition, it did not have a credible integration plan. This meant costs were much higher than they needed to be. Management at the time had no grip on the day-to-day operations of the business."

He adds that before the recent sell-offs, Highbury should have targeted one area of magazine publishing - whether consumer, specialist or business-to-business. "One of the problems was that its portfolios of magazines had no significant scale and looked pretty thin."

Fletcher tells The Independent on Sunday that his attempts to reduce debts were blocked by non-executives on the board. He claims they blocked initial bids for the business publishing division because they were not high enough.

He adds that the non-executive directors also rebuffed interest from venture capitalists who wanted to buy the group earlier this year, in favour of a takeover by rival Future Publishing. This was despite the competition issues involved, which meant it was blocked by the regulators. "I feel short-changed as a shareholder by an incompetent board," he says.

Despite Highbury House's rapid expansion, it was always a minnow compared to the magazine publishing giants of Emap, IPC Media (publisher of Marie Claire and Loaded), UBM and Reed Elsevier. As competition has increased, the publishers able to invest in their titles, and boasting economies of scale, are the ones that survive. Mark Gallagher, press director of media buying agency Manning Gottlieb OMD, says that since 1990, the number of magazine titles has grown by half - yet the pool of money generated by advertising and circulation has remained the same.

"The magazine market is oversupplied," says Gallagher. "This means that publishers have to fight for market share and spend huge amounts of money on research and development, on launching titles and marketing. Highbury has been low profile for as long as I can remember. It just does not have the investment muscle like the IPCs and Emaps of this world."

Fletcher resigned 18 months ago and new management tried to rein in the group's costs. Salvation appeared in the shape of Future, Highbury House's larger rival, which offered to buy the group in the spring, but the deal was blocked by the Competition Commission. In the end, following the disposal of the business-to-business division and its local titles, Highbury House sold around half its titles to Future for just under £30m in June - in what, say analysts, amounted to a fire sale.

MacKenzie arrived on the scene in August. Flush from the sale of his stake in The Wireless Group, he began stakebuilding. In his maiden results, he said the group's bankers had agreed to refinance the debt by the end of November, probably in the form of a debt-for-equity swap. This deadline has passed and the talks have ended, which analysts interpret as a lack of faith in Highbury House's future viability.

The banks, led by Barclays, Royal Bank of Scotland and Allied Irish, may prefer to call it a day and recoup as much as possible, either through administration or, more likely, selling the group. Either way, they would do well to recover half their money. Shareholders, the largest of whom remains MacKenzie, are likely to get even less.

MacKenzie, who has until now demonstrated a canny sense of timing with the prudent acquisition and then sale of The Wireless Group before the recent downturn in the radio sector, is running out of time to pull a rabbit out of the hat. If he doesn't, some in the City might say: "Gotcha".