Late last Friday, bankers at Lazard were fielding calls from interested buyers of Lord Black of Crossharbour's media empire, blissfully unaware that on the other side of the Atlantic, a rival deal was being hatched. Early on Sunday morning, it was announced that the Barclay brothers had agreed a deal with Lord Black which would give them control of Hollinger International, which owns The Daily Telegraph and The Sunday Telegraph, the Chicago Sun-Times, The Spectator magazine and The Jerusalem Post.
Even by newspaper industry standards, it was an audacious smash and grab raid. Journalists at the Barclay brothers' existing papers in the UK - The Scotsman and The Business - had been left in the dark just as much as Lazard. "We only know what we read in the papers," one writer said, the irony not lost on him.
But few who know the brothers were surprised. They have made no secret of their desire to expand their media empire and boost the political clout and prestige that goes with being newspaper proprietors. They have been linked with every UK newspaper group that has come on the market in the last five years. Another journalist employed by the Barclays remarked ruefully of the deal: "They've just got themselves a new train set."
As media commentators slavered over the deal, one man not usually short of opinions on the industry was strangely silent. Andrew Neil, the Barclays' editor-in-chief and publisher, has yet to comment publicly on his employers' coup. On Wed-nesday, he did not write his weekly media page in the Evening Standard, owned by Associated Newspapers, which would love to get its hands on the Telegraph titles. The Standard said he was away, yet Mr Neil was working from his London office as usual during the week. While he has left the negotiations to take control of Hollinger International to the Barclays' advisers, raising suggestions in some quar-ters that he is being frozen out, it seems more likely Mr Neil is being lined up to run a media empire which would span three continents. But he was not speaking about his future role last week.
The twin brothers grew up in the 1930s in Shepherd's Bush, west London. After leaving school early, they became decorators before moving into property. They made their first serious money in the 1950s and 1960s by buying up boarding houses, which they converted into hotels. Later they moved into shipping, brewing and travel with the acquisition of Ellerman Group in the early 1980s for £45m. Selling off the brewing division for £240m in 1988, they used the cash to move into hotels, buying the Ritz in 1995. The most recently filed accounts of Ellerman, their main holding company, for 2002, show assets of £270m. Last year, they also bought the clothes retailing empire Littlewoods. All their business interests are held through private companies.
Their entry into the newspaper business was inauspicious - they bought The European from the late Robert Maxwell in 1992. The Barclays lavished £74m on the paper and in 1997 appointed Mr Neil, formerly withThe Sunday Times, as editor-in-chief. Mr Neil pursued a Eurosceptic line, which puzzled staff at a title trying to capitalise on the integration of Europe. But the Barclays, as with all their other newspaper assets, did not interfere; the paper eventually folded in 1999, just as plans for European monetary union were being finalised. The legacy lives on, however: some of the computers at The Business, the brothers' weekly financial title, still bear stickers marked "The European".
By then, the brothers had acquired The Scotsman for £85m. But when appointed editor-in-chief and publisher in 1999, Mr Neil was contrary again, taking an anti-devolution editorial stance just when support for a Scottish parliament was gath- ering steam. He has now been through five editors at The Scotsman, while morale has been hit by a wave of redundancies. Circulation is now hovering at just over 70,000 after bursting through the 100,000 mark for the first time in 2001. Thanks to heavy cost-cutting, the group - which also includes the Edinburgh Evening News and Scotland on Sunday - still turned in a post-tax profit of just under £5m in 2002, which is no mean feat. It has been valued at up to £200m.
The last piece in the Barclays newspaper jigsaw is Sunday Business, the weekly financial title relaunched as The Business two years ago. Bought in 1998, it racked up losses of over £30m and was on the brink of closure before the Barclays agreed to continue funding it under the direct editorial control of Mr Neil. He cut costs, outsourced production and gave it more of a European business focus. In September, he brokered a deal with Associated to give it away free to Mail on Sunday readers. Provided the Mail deal is extended when it comes up for renewal in May, Mr Neil hopes The Business will break even in the second half of the year. It would be an incredible achievement in the current depressed advertising market; his reward could be editorial control over Hollinger International.
Sales of The Scotsman, like its rival, the Glasgow-based Herald, have been hit by London-based national newspapers devoting more resources to their Scottish editions. A year ago the Barclays' bid to buy the Herald group was blocked on competition grounds, depriving them of an opportunity to cut costs. However, The Daily Telegraph, which according to the latest ABC figures has a daily circulation of just over 920,000, has yet to make an impact on the Scottish market. If the Hol-linger deal goes through, there would be ample scope for copy syndication between their existing titles and the Telegraph.
In an interview last week, Sir David Barclay said synergies could be made in administration and advertising with his other newspapers. The Scotsman's 20- strong advertising team operates independently of that at The Business, which until it was brought back in-house used to operate from the Telegraph's offices in Canary Wharf.
While the focus has been on the Telegraph, ownership of the Chicago Sun-Times and The Jerusalem Post would satisfy the brothers' ambitions of a global media empire. Sir David has already intimated that they are not looking to break up the group, saying last week: "We are in this for the long haul." Their hotel, property and media interests already bring in an estimated £4bn per year, and the Sunday Times Rich List ranks the twins at number 34, worth £650m. They can afford not to sell the other titles.
Mr Neil has hankered after a global media business to run since he left News International and the pay of Rupert Murdoch. He has recently been in talks with Dublin's Ireland on Sunday, La Tribune in Paris and Il Giornale in Milan to expand the reach of The Business. There has also been talk of a US edition, and Mr Neil's obsession with America has been well documented. He has criticised business sections in UK newspapers for their "parochial" domestic focus; his model is The Wall Street Journal Europe, and The Economist, where he was UK editor.
As one observer remarked last week, if the Barclay brothers did not appoint Mr Neil to run Hollinger International, it could spell the end of the partnership. The Barclays are grateful to Mr Neil for boosting the profile of their newspaper assets and trust him implicitly. He is known to greet Sir David's son, Aidan, who handles much of the twins' day-to-day operations, with an affectionate bear hug when visiting him in London.
Some 20 years ago, as the newly appointed editor of The Sunday Times, Mr Neil called the customary staff meeting to welcome the journalists. He is said to have told bemused staff: "I believe the best way to get the most out of people is to keep them on edge." Two decades on, Mr Neil, now the front man for potentially the next dynasty of global media moguls, still has everyone guessing.
A snip at £260m - but it's not in the bag yet
It is a curiously overlooked aspect of their deal with Lord Black that the Barclay brothers are seeking control, not ownership, of the New York-listed Hollinger International.
They have "given notice of their intention to launch a conditional offer" of £260m for all the shares of Hollinger Inc, a Toronto-listed holding company whose main asset is its 30 per cent equity stake in Hollinger International. Lord Black, through his privately held company Ravelston, owns 78 per cent of Hollinger Inc.
Crucially, the 30 per cent stake held by Hollinger Inc carries with it 73 per cent of Hollinger International's voting rights. Whoever owns the Hollinger Inc stake - and its voting rights - has control over Hollinger International.
The Barclays this week are expected to formally launch the C$8.44 per common share offer, priced at a 100 per cent premium to Hollinger Inc's closing price on the Friday before the deal, which was C$3.90 per common share.
They then have 35 days to complete the deal, after which, theoretically, they should gain control of Hollinger International and its media assets. Should it go though, it would be a steal. For £260m they gain editorial control, and a 30 per cent economic interest, in a media empire which could be worth as much as £1.5bn - with the Telegraph Group said to be worth £1bn, the Sun-Times at least £400m and The Jerusalem Post in the region of £25m.
However, it is by no means a done deal. The board of Hollinger International - which includes the former US secretary of state Henry Kissinger - has, together with shareholders, filed separate lawsuits against Black, Ravelston and Hollinger Inc, claiming more than $200m (£109m).
The Barclays' offer for Hollinger Inc has set aside $60m to cover compensation payments. Hollinger International shareholders told The Independent on Sunday there was concern that Black was trying to cap his exposure to the legal claims and that the sale of his shares in Hollinger Inc could block the claims. Hollinger International has also hired the merchant bank Lazard to conduct a strategic review of the business, which could still lead to a lucrative break-up for shareholders. The review was originally due to have been completed by late March, by which time the Barclays could be in control of Hollinger International.
If Hollinger International decides Black's deal with the Barclays is not in its interest, it could seek to block it under an obscure Canadian law designed to prevent hostile takeovers. Under Section 203, a shareholder who takes control of a company without the agreement of the board - ie, through a hostile takeover - cannot exercise his voting rights to merge or dispose of any of the company's assets for three years.
But the Barclays may not wish to change the company's structure. The brothers sound confident that they have all the legal bases covered, but in such a complex case - and with limited due diligence - there is no guarantee.
'This was my introduction to the Barclays' obsession with secrecy'
Sir David Scott should know what it's like to be on the receiving end of an unexpected offer from the Barclay brothers. After all, he sold a struggling business to them for a knockdown price in 1983, enabling the ambitious brothers to break into the big time. Some 20 years on, their unorthodox business methods have hardly changed.
Sir David was chairman of Ellerman Group, which after the Second World War was one of Britain's biggest shipping companies, but by the early 1980s had fallen on hard times. The board decided to cut its losses and appointed investment bank Morgan Grenfell to find a buyer. After a year, no firm bid had materialised, then in the summer of 1983 the Barclay brothers appeared on the scene. Their main company, Barclay Hotels, showed an annual turnover of no more than £5m. Compared to Ellerman Group's annual turnover of more than £176m, they were small fry.
It did not stop them approaching the daughter-in-law of the company's founder in Monte Carlo, where the brothers owned a hotel. They did not tell Morgan Grenfell of their interest.
In his recent memoirs, Window into Downing Street, Sir David recalled that first meeting with the enigmatic Barclay brothers in Monte Carlo. "Punctually at nine the next morning, the doorbell of the flat rang and two almost identical small men dressed as for yachting appeared, looking for all the world like a pair of not-so-young juvenile leads from The Boy Friend."
David Barclay, he writes, took the lead in the negotiations. Talking to The Independent on Sunday, he described his brother, Frederick, as a "moderating influence" on the more gregarious David. David Barclay asked him outright the minimum price expected by the company's shareholders. Sir David gave the figure £77m. David Barclay said they would send his son, Aidan, then in his 20s, to look at the books, on the condition that the due diligence was carried out in complete confidence. Only the trustees and the two directors who would show Aidan the books were to be told who he was or what he was doing. "This was my introduction to the Barclays' obsession with secrecy," he writes. Two weeks later, at the end of another meeting with Sir David, the Barclays handed him a sealed envelope. He opened it in his car. It was a formal offer for the Ellerman Group of £46m - £30m shy of the original asking price.
"It was extraordinary, but perhaps characteristic, that they should only have informed me of the offer when our meeting was over and they could no longer receive a first- hand reaction," he says. With no other offers, the board eventually accepted. The Barclays broke up the business - as the board had feared - selling the group's brewing assets for £240m five years later.
Hollinger International shareholders should take note.
'Window into Downing Street', by Sir David Scott, is published by The Memoir Club (£18.50).Reuse content