Next stop Norway as Monty storms Europe

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The Independent Online

David Montgomery, still regarded with fear in newsrooms across the UK, has managed to win over some support in Norway, where he has just pulled off his biggest deal yet.

The Norwegians initially took to heart the old caricature of Mr Montgomery as "Rommel" but by Sunday last week, the former chief executive of the Mirror Group was being described by at least one union representative as "that nice piano-playing Irishman". It was the first time that Mr Montgomery, whose reign at Mirror Group Newspapers was known chiefly for its savage cost-cutting policies, had been able to publicly address concerns in Norway.

The €900m (£620m) takeover of Orkla Media by Mr Montgomery's Mecom vehicle has added assets in Norway, Denmark, Sweden and eastern Europe to the pan-European newspaper empire he has created in just eight months. Like a conquering general, he has carved out a swath of assets across northern Europe.

However, concerns about his modus operandi remain high among journalists and politicians in Norway and Denmark - even if they are now being expressed in less personal terms. The worries also remain in Germany, where Mr Montgomery began his Continental adventure at the end of last year with the acquisition of the quality broadsheet Berliner Zeitung. The editor of Berliner Zeitung has just been changed in highly controversial circumstances.

Norway's culture minister, Trond Giske, has even looked for a way to block the Orkla deal, although he admitted he had no levers of powers that he could use.

Mr Giske told The Independent: "My door will be open to find other solutions but in the end it's up to Orkla... We don't have and don't want laws that treat foreign media owners different to Norwegian owners."

The culture minister added: "Orkla consists of many small newspapers - I am very concerned that high demands on company contributions could weaken the newspaper product: these newspapers are not only businesses but democratic institutions, vital to local political debate, and a weakening of these newspapers would be critical."

Mr Montgomery has made it clear that he expects a 15 per cent operating margin from his latest acquisition. The 40 newspapers in Orkla Media currently have an average operating margin of 7 to 8 per cent.

Last week, Mr Giske was more forthright. He was quoted as warning the new owners of Orkla: "A media owner, including Montgomery, has to be very conscious of his civic responsibilities. Norwegian media annually receive billions of Norwegian kroner [millions of pounds] in subsidies. Too much focus on profitability will undermine the foundation for this financial support."

The company's employees are worried that such high demands to profitability will lead to massive redundancies and cost-cutting in the newsrooms. So much so that they announced yesterday that they are retaining a financial expert to take a closer look at the numbers.

Eli Floberghagen, an employee representative on Orkla's board, said: "We have hired an independent expert to look at the consequences for each individual newspaper. It's not that we don't trust Montgomery and his assurances, but when you have such a high per cent of borrowing the investors will demand something back."

She said the average profit margin is 7.5 per cent in Norway, 3 per cent in Denmark and 5 per cent in Poland.

"To increase this to 15 per cent will require dramatic measures. What we fear the most is that a very high demand on turnover will have a detrimental effect on the journalistic output," she said.

It is precisely because profit margins are so low in Continental European newspapers that Mecom has pounced on them. But the company has stressed it is interested in retaining the distinctive identities of each newspaper and in investing in the products. It has mostly bought regional, rather than national papers, which enjoy strong local franchises.

Cost-cutting will no doubt be part of its programme but Mecom sources insist these decisions will be left to local management.

"You don't invest in these businesses to alter their identity. That's where the value lies. They only exist because the community they serve finds them useful," said one Mecom insider.

Kjetil Haanes, Orkla's main employee representative, told Norway's biggest financial daily Dagens Naeringsliv: "The problem is not David Montgomery. He is a nice guy from Northern Ireland who plays the piano. The problem is the business idea. Mecom is a mosquito with six employees eating an elephant."

Mr Montgomery has said that, aside from Sunday's press conference, he cannot comment until the Orkla deal completes. He is currently touring City institutions to sell the £300m rights issue required to pay for the assets, though it seems near certain that he will be able to raise the money (Mecom's third fund-raising). It is understood that Mecom's top shareholders, which include Fidelity and Schroder Ventures, agreed to commit money before the Orkla deal was formally announced last week.

Mecom insiders point out that the average salaries at the newspapers the company has bought are much, much higher than the norm at regional papers in the UK. And Mecom has no intention of lowering these wage levels - as long as they are getting value for money.

The average wages of employees in the papers acquired by Mecom are €78,000 (£54,000) in Denmark, €73,000 in Norway and €65,000 in Germany. Those are average salaries, with the earnings of some journalists likely to be significantly above these figures.

There are no real synergies in the geographical mix of assets bought by Mecom. It paid €160m for Berliner Zeitung in November last year and it acquired Hamburger Morgenpost in January. It did those deals as a minority partner to the US private equity group Veronis Suhler Stevenson. But the two deals agreed since then, the €200m acquisition of the Dutch media group Limburg and the €900m Orkla deal, were done by Mekom alone. He is buying newspapers at much more attractive prices than available in the UK, where papers command trophy values. With Orkla, for instance, he is paying less than the annual turnover of the business.

The most recent episode, the apparent sacking of Berliner Zeitung's editor in late May, in which Mr Montgomery was again vilified, was yet another example of the company and him being misunderstood, Mecom sources insist. According to Mecom, the previous editor had secretly resigned, before his replacement was appointed. To journalists at the paper, the change of editor was sprung upon them one morning, resulting in them writing a front-page article protesting about the move.

Newspapers are an industry in trouble, with shrinking circulations and advertising revenues that are drifting to the internet instead. But in Continental Europe, the stronger following that the regional press enjoys means that circulation falls are not so acute. The scale that Mecom will now bring to the sector means it is better able to manage what it sees as "gentle decline".

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