Mail pledges to be passive investor if 'Telegraph' bid wins

Daily Mail & General Trust, the owner of the Mail newspapers, is arguing that it will be a "passive" investor in a bid it is pursuing with a private equity group for the Daily and Sunday Telegraph newspapers in an attempt to circumvent regulatory hurdles.

Daily Mail & General Trust, the owner of the Mail newspapers, is arguing that it will be a "passive" investor in a bid it is pursuing with a private equity group for the Daily and Sunday Telegraph newspapers in an attempt to circumvent regulatory hurdles.

The company, chaired by Lord Rothermere, is understood to have downplayed its role in the bid, claiming it is there simply as a financial backer to existing Telegraph management. DMGT's offer would see it taking a minority stake in a bid vehicle led by its partner, CVC, the private equity house.

It would pledge no editorial interference and would even limit severely the commercial benefits of bringing DMGT's papers together with the Telegraph, such as combining the advertising sales operations. Instead, links between DMGT's national newspapers and the Telegraph would be limited to non-contentious areas, such as the buying of newsprint. DMGT's papers and the Telegraph titles would, together, have aboutquarter of the national newspaper market.

By structuring its bid in this way, DMGT hopes to avoid a referral for a full inquiry to the Competition Commission, which could block the acquisition. However, DMGT would have an agreement to buy out CVC at some point, possibly when the regulatory and political climate is more favourable to DMGT, whose newspapers are virulently against the premiership of Tony Blair. Many competition and industry experts believe this arm's length arrangement for owning the Telegraph would not be enough to prevent a referral. DMGT's alliance with CVC is, though, understood to be have been forged as much for financial reasons as regulatory concerns.

Putting up only a minority of the cash required to buy the Telegraph would keep DMGT's credit rating intact and remove the need for disposals or a rights issue. DMGT is competing with two other bidders still in the race to acquire the Telegraph - the Barclay brothers and 3i, a private equity group. It is thought the offers have now reached between £670m and £690m.

The three bidders will have a final round of negotiations next week in face-to-face talks with Lazard and, possibly, members of the Hollinger board. A winner could be declared by the end of the week.