Jeremy Warner's Outlook: Media joins distress rights issue queue

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The Independent Online

There was a time when Tim Bowdler, Johnston Press's long-standing chief executive, could do no wrong. Yes, newspapers appeared to be a mature, gently declining industry which with the growth of the internet faced some big structural challenges, yet, by hoovering up unwanted regional titles, integrating them into a larger group and cutting cost, Mr Bowdler seemed to be able to make the bottom line sing, with a truly astonishing rate of return on sales.

Now he's been reduced to a state of near penury by fast-falling classified advertising revenues. If things get any worse, as Mr Bowdler fears they very probably will, the company will breach its banking covenants, so there's to be a rescue rights issue, and a strategic investor to boot – Usaha Tegas from Malaysia. Going into the downturn, and with credit markets still essentially closed to debt refinancing, Johnston simply found itself with too much leverage.

Usaha Tegas is the holding company for many of the business interests of Tan Sri Tatparanandam Ananda Krishnan, one of Malaysia's wealthiest men with extensive gaming assets in the Far East.

More recently, he has bought aggressively into telecommunications, media and entertainment. TAK, as he is sometimes known for simplicity, first came to prominence in Britain for helping to organise the Live Aid concert with Bob Geldof in the mid 1980s, but in the main is an intensely private man who likes to keep himself to himself.

As for Johnston, it is hard to see what the Malaysian tycoon brings to the party other than money and the possibility that eventually he'll bid for the whole shebang. Together with shares bought from the family, TAK ends up with a 20 per cent shareholding. Apart from paying down debt, the new money is to be used to help the company in its transition from a solely print medium to a combined print, online and mobile media business.

Having milked the print over so many years, how credible are the company's plans for migrating online? Classified advertising is the lifeblood of the regional press, and, right now, the three pillars on which it is based – jobs, homes and cars – are going through the floor. The company insists that the 7.1 per cent like-for-like fall in in advertising revenues seen in the 17 weeks to 26 April is a mainly cyclical phenomenon, yet there are few outside analysts who would agree.

The internet is at its most lethal for the print in classified advertising, and, while the likes of Johnston have been active in building an online presence, it tends to be not the regional newspaper titles but the more specialist, entrepreneurially led, sites that the classified traffic gravitates to.

Perhaps Mr Bowdler can pull it off. TAK plainly believes he can. Underwriters to the rights issue, on the other hand, seem not to be so sure. They've insisted on a massive 61 per cent discount for the new shares on the undisturbed market price, and still they are taking their underwriting fee. Johnston's need must indeed be desperate.