Outlook: Telegraph's future back in the melting pot

Channel 4/5; Take a shower

A triumphal announcement had been planned, the air was thick with a knowing confidence, the media interviews were lined up, the champagne was on ice; yet it was not to be. By late Thursday night our time, the Barclay brothers' hopes of acquiring control of The Daily Telegraph on the cheap, craftily outmanoeuvering all rival contenders in the process, had turned to dust.

Defying most predictions, a Delaware court ruled that Conrad Black's sale of a controlling interest in Hollinger International, owner of the Telegraph titles, was illegal. Lord Black naturally disagrees, but with more good grace than was reasonable to expect from a man whose reputation has been so comprehensively shredded by the judgment, he seems to have accepted it. There's little prospect of an appeal.

The upshot is that the fate of The Daily Telegraph and Hollinger's other newspaper titles is back with the Hollinger board. That doesn't mean the Barclays are out of the picture; yet to win the titles, they will now have to participate in an auction, and that means they'll have to pay a lot more than they intended. The beauty of the private deal struck with Lord Black had been that Richard Desmond, the Daily Mail and the others that have lined up to bid for the Telegraph, didn't get a look in. It was an inspired gamble, but it hasn't paid off.

There are now three options before the Hollinger board. Either they do nothing at all, and let Lord Black go fry, which is a perfectly reasonable course of action given that the financial problems don't lie in Hollinger International itself, but further up the food chain in Lord Black's private holding companies. Or they put Hollinger International up for sale. Or they proceed with the pre-existing plan to auction off the assets piecemeal.

My man at the boardroom table tells me that it's already too late for Hollinger to remain independent. One way or another, shareholders want out. So as a first step, Hollinger International will be put up for sale. The board will then have to decide whether more value is delivered by selling off the assets piecemeal than by accepting a takeover bid for the whole shebang. The Barclays have already intimated that they would be prepared to bid $18 a share for Hollinger, or $1.4bn in total, which sets a reserve price for any bidding war.

I'm assured that there's to be no anti-Barclay agenda. To the contrary, Lazard Brothers, the merchant bank conducting the process, is keen to have the Barclays full participation. They will be as free to bid either for the whole or just the Telegraph, as anyone else.

The cleanest solution from the board's point of view would be an outright bid for the whole of Hollinger. The alternative, piecemeal sale of the assets might involve the group in some potentially quite large tax liabilities. The tidal wave of litigation building up against Hollinger might also interfere with the board's ability to distribute the proceeds to shareholders. Any buyer of the whole company, on the other hand, would have to bear the litigation risk, which further adds to the attractions of selling the whole rather than the individual bits.

So now that the future of the Telegraph is back in the melting pot, who becomes favourite to win? Richard Desmond, publisher of the Daily Express, is only interested in the Telegraph titles, but he claims deep enough pockets to bid for the whole should that prove necessary. Furthermore, he brandishes a potential ace, which is pre-emption rights over the Telegraph's 50 per cent interest in West Ferry printers. On the other hand, he would face an almost certain Competition Commission inquiry. The Barclays, and other private equity bidders, are unlikely to have to go through that process.

The Delaware judge who presided over the case, Leo Strine, said that the one colour that didn't figure in his judgment was grey, meaning that it was a black-and-white, open-and-shut case. The same cannot be said about the future ownership of the Telegraph, which is about as clear as deepest grey mud.

Channel 4/5

Should luke Johnson continue to call himself The Maverick, the title of his column in the Sunday Telegraph, now that he's been elevated to the chairmanship of Channel 4? However he plans to approach his new job, he's certainly got to think fast and laterally if he's to stop Channel 4 from slipping into the sea. The media landscape is changing all around him. The question of the moment is whether a merger with Channel 5 might provide the answer.

The logic of such a get together is obvious enough. With the merger of Carlton and Granada to form a single ITV, with a half of all TV advertising, Channels 4 and 5 are left looking even more out on a limb and niche than they were before. To the BBC and BSkyB leviathans has now been added an 800lb gorilla in the shape of a newly resurgent ITV, further widening the divide between the super league of broadcasting and the also-rans.

To add further to those disadvantages, Channels 4 and 5 continue to maintain separate infrastructures and advertising sales houses. Merge the two and all that duplicated cost is removed. How might that be done, with one channel government-owned and subject to public service broadcasting obligations, and the other a fully commercial enterprise with private shareholders to answer to? A full merger, in the legalistic sense of the term, seems out of the question. For that, Channel 4 would have to be privatised. Nobody is ruling this out as a long-term option, but it would take ages to happen and the present government is philosophically against it.

However, there are a lots of other ways in which the two channels could share costs and even coordinate scheduling in a manner that would enable the two of them to be more competitive. Somehow or other, they must respond to the creation of a single ITV and this may be the way. As things stand, Channel 5 seems to be rather keener on the idea than Channel 4. Much of the drive for an alliance is coming from Lord Hollick, one of Channel 5's major shareholders. Channel 4 would be unwise to ignore him. It may not be the solution, but at this stage it's hard to see where else the two channels will derive the sort of cost cuts and synergies they need to survive in an era of intensely competitive multi-channel TV.

Take a shower

During the downturn, Sir Martin Sorrell, chief executive of the advertising giant WPP, gained notoriety with his references to bath and saucer-shaped recoveries. In so doing, he was much more accurate in his predictions of the length of the recession than most. He refused to believe that 2002 would be a year of recovery, and was widely condemned as a pessimist for his trouble, but he was right. You'll be pleased to know that he now considers us to out of the bath, but he fears that a cold shower may lie in wait just around the corner.

The reason for his caution is the US economy. Some big up-coming sporting events and the US presidential election itself should keep the advertising market in strong growth mode throughout this year, but it is what happens afterwards that worries Sir Martin. President George Bush has little to lose and everything to gain by letting rip on the economy for as long as it takes to get re-elected. Somewhat surprisingly, the US Federal Reserve seems happy to go along with Mr Bush's pro-growth policies. Yet at some stage soon there will have to be a sharp application of the breaks. Whether the revival in the Far East will be enough to carry the world economy through once the debt fuelled bubble of the US economy is brought to heel is anyone's guess.