Richard Desmond, owner of the Express Group, and Lord Rothermere's Daily Mail & General Trust, are expected to be ruled out of the running to buy the Telegraph Group.
Both newspaper rivals have shown an interest in the owner of the Telegraph titles, which is expected to be put up for sale because of the problems engulfing its parent company, Hollinger International, and its chairman, Lord Black of Crossharbour.
Lazards, the merchant bank, has been appointed to review the options for Hollinger and is expected to start an auction of the Telegraph shortly. The business, which made profits of £39.7m last year, could be worth as much as £1bn.
Sources close to the bank said any sale would have to be swift because of Hollinger's pressing debts, which include $120m (£70m) of bonds that need to be repaid next year. "The bank does not want to be selling to anyone who would be caught up in Competition Commission problems," said an insider.
A DMGT purchase of the Telegraph would give it around 26 per cent of the UK national newspaper market. If Mr Desmond bought it, he would have around 20 per cent. This compares with the 32 per cent control of Rupert Murdoch's News International. Media analysts are convinced bids by DMGT or Mr Desmond would face full investigation by the authorities and take up to six months, with no certainty that either would be waved through.
A host of other potential bidders have emerged for the Telegraph. These include finance groups Candover, Blackstone Partners, Kohlberg Kravis Roberts and Bain Capital, billionaire financiers Nelson Peltz and George Soros, and businessmen Lord Saatchi and Michael Green.
Mr Desmond also plans to make an offer for the Telegraph's 50 per cent of Westferry Printers, a joint venture with the Express. This was subject to a long legal dispute between the two, settled earlier this year. The Telegraph has a contract to print its papers at Westferry until 2008 but is understood to have had talks with DMGT about moving its printing to its newly re-equipped plant in Surrey Quays.
The crisis at Hollinger was precipitated by the report by a board committee, advised by the former head of the US Securities and Exchange Commission, Richard Breeden, revealing that the group had incorrectly paid $32m to four directors, including Lord Black.
This has led to the resignation of Lord Black as Hollinger's chief executive, investigations by the SEC and Canadian regulators, and the unprecedented filing of third- quarter figures which were not signed off by its directors. Hollinger said it had also over- stated previous profits by $17m.
Late on Friday four director quit the board of hollinger Inc, the Canadian company which controls Hollinger International, after refusing to accept changes recommended by Mr Breeden.
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