Black angry at 'arrogant' Rothschild arrogance'

Fury at Telegraph over buy-out shambles

NM ROTHSCHILD, the merchant bank, has come under attack from management and institutional shareholders in the Telegraph group, which owns the Daily and Sunday Telegraph newspapers, following the collapse of Conrad Black's proposed buy-out of minority shareholders.

Rothschild, the Telegraph's financial advisers, acting on behalf of the independent directors, advised against recommending an offer of up to 470p to shareholders, claiming the stake was worth at least 500p a share. In the event Mr Black, who had warned in an Independent on Sunday interview that he would pay "nowhere near" 500p, withdrew his offer completely.

A source inside the Telegraph said Rothschild's advice was "arrogant". He complained that the advisers "refused to budge" even after concessions were made. "These guys have hardly endeared themselves to us," he said, leading to speculation that Mr Black might seek the bank's removal as the company's effective financial advisers.

It also emerged that some institutional shareholders of the Telegraph were annoyed that their views were not directly sought by Rothschild prior to the independent directors' decision not to recommend the proposal. "If there was a genuine offer on the table, it ought to have been discussed with shareholders," said Neil Woodford, UK fund manager at Perpetual Unit Trust Fund Management.

After Wednesday's announcement shares in the Telegraph group fell sharply. The stock had risen to as high as 449p on speculation that Mr Black's offer would proceed, dropping back to as low as 374p on news of the withdrawal.

Rothschild vigorously defended its valuation, saying it had been based in part on an analysis of comparable media stocks. The firm also pointed out that it had been retained by the Telegraph to act as financial advisers for the past five years, specifically to advise minority shareholders in the event of acquisitions, divestitures or other corporate activity.

"I would be flabbergasted to hear any suggestion that Rothschild might not continue in the role that it has been playing," said a source at the firm. He said shareholders had been informally approached by Telegraph's brokers, Panmure Gordon, and had divided depending on when they bought their shares.

Those who subscribed to a controversial placement last year at 587p, just prior to an announcement that the Telegraph would join the cover price war, were holding out for a higher price. Others, including Perpetual, bought their stakes later in the year, when the shares were trading at or below 350p. Disagreements over the purchase of a stake in Southam Inc created tensions among minority shareholders, advisers and Mr Black's Hollinger group, his master company, which owns 58.5 per cent of the Telegraph, earlier this year.

Under the complicated restructuring of his media holdings, Mr Black had hoped to transfer all Telegraph shares, along with the company's 25 per cent interest in Fairfax Holdings of Australia and a stake in Canadian newspaper publisher Southam, to American Publishing, Hollinger's US holding company.

Announcing the proposal in February, Hollinger said it would only proceed with a formal offer to buy out Telegraph's minority shareholders if inde- pendent committees at both American Publishing and the Telegraph gave their blessing.

Executives of Hollinger said the independent directors had "acted responsibly" in accepting the recommendations of their advisers. "They couldn't just ignore the advice they received," one senior executive said.

The prospect that the proposed buyout could be revived later this year had gained credence by the weekend, and the shares edged back up to end the week at 389p. Daniel Colson, Telegraph chief executive and a director of Hollinger, confirmed that the company was still interested in proceeding with the reorganisation. But he added: "Given the position of the independent directors, Hollinger is not contemplating making a formal offer at this time."