Break-up no answer at United

Changes are afoot at the Express newspapers, but investors should not hope for swift returns
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The Independent Online
IT HAS been quite a week for United News & Media, the old United Newspapers, publisher of the Daily Express. Recurrent speculation of a break-up failed to shift the share price much over the last fortnight or so. But Wednesday's surprise exit of Sir Nicholas Lloyd, Britain's longest-reigning newspaper editor, certainly made the market take stock.

And the verdict on the end to Lloyd's 10 years at the helm of United's tattered flagship? A 19p jump in the shares to 536p in 48 hours, a near pounds 50m uplift in United's market value - now pounds 1.32bn - against which Sir Nicholas's pounds 360,000 pay-off paled into insignificance.

The reaction, helped also by a 3p increase in the cover price of the Express from tomorrow, tells United's story in a nutshell. The group has long been the laggard of the media giants, with a tale of missed opportunities that market wags dub "miss-management".

It bought, for example, financial information group Extel for pounds 45m in 1987 but after lack of investment sold it again to the Financial Times owner Pearson for pounds 73m two years ago. A handsome profit? Hardly, after six years, when ratings of electronic information services were going through the roof.

Instead, as rivals such as Reed and Pearson looked to growth areas - multi-media, television and high-value business information - after debt- laden 1980s growth, United was left with the flagging Express, regional papers and a third-rank exhibitions business, with little clear sign of strategy.

"They over-expanded in the 1980s and were left with a balance sheet that could not support investment. Readership fell across the board," says Anthony de Larrinaga, media analyst at broker Panmure Gordon.

And how it fell. In Lloyd's decade, the Daily Express circulation dropped from just under 2 million to 1.3 million at the last count, against 1.9 million for the Daily Mail.

The shares have lagged almost as badly. Ever at a discount to its peers, Rupert Murdoch's circulation war scuppered the chances of a significant re-rating after a pounds 190m rights issue wiped out debt in 1993.

Acquisitions since then, though largely successful, have simply been too small and too cautious to seriously bump up prospects.

The stock has been freshly battered as a result, plunging from an all- time high of 725p early last year after United splashed out $100m (pounds 64m) on Harmon, a US publisher of car and property magazines such as Exchange & Mart and Dalton's Weekly.

The consensus forecast for 1995 pre-tax profits, due next March, is pounds 135m, down from pounds 138m last year, although 1996 looks better at pounds 155m as United finally invests in its titles.

Indeed, the share rise in the last two days has as much to do with signs of Express investment as sale speculation or the extra pounds 10m the new cover price - now 35p, the same as the Mail - is likely to add to profits.

United vehemently denies that its retaining of merchant banker George Magan means the Express is up for sale: "Magan has been given a job to look at ways of putting different services together ... to look at back office savings," a spokesman says.

The market will not quite wear that. Hambro Magan are mergers and acquisitions experts not management consultants, so most analysts see nothing ruled out as yet.

A break-up above a knock-down price would be fraught with difficulty, however. The national titles may be worth pounds 260m, but talk centres on the "usual suspects" - the Barclay brothers, Tony O'Reilly, even Mirror Group . It is unclear who might step in with circulation still falling and advertising rates under pressure. The regional papers, including the Yorkshire Post, may be worth up to pounds 300m, but a flood of rival products may have glutted the market.

On past history, many place little confidence in United's ability to re-invest in growth areas at an acceptable return. Therein lies the nub of doubt: strategy and management under controversial chairman Lord Stevens, still hanging on after 14 years at the helm.

United still misses valuable opportunities. One unconfirmed story is that last December it actually bid more than Emap's pounds 60m for the Canadian publisher MacLean Hunter's European business publications, but lost the deal through dithering.

With a sum-of-the-parts value of possibly 550p-600p, United's shares are a hold or longer term buy, but investors should not expect huge immediate returns from break-up talk.

United News & Media

Share price 536p

1994 1995* 1996*

Sales pounds 1.1bn N/A N/A Pre-tax profits pounds 138m pounds 135m pounds 155m Earnings per share 39.5p 37.1p 42.6p Dividend per share 23p 24p 25p Price-earnings multiple 13.6 14.4 12.6 Gross yield 5.5 5.7 5.9

* Estimate