Struggling Johnston Press in emergency £212m fundraising
Malaysian investment group to take 20 per cent stake and replace family as largest shareholder
Thursday 15 May 2008
Johnston Press, the regional newspaper group whose titles include The Scotsman and the Yorkshire Post, resorted to a £212.3m emergency fund raising yesterday that will see the group's founding family lose its place as the largest shareholder for the first time.
Johnston's chief executive, Tim Bowdler, admitted in March that the company was in danger of breaching its banking covenants. Under pressure from digital competitors and the slowing economy, the group's £692m debt was proving unsustainable against underlying earnings projections for the year of just £185m. But last month's proposal from a then minor shareholder – the Usaha Tegas investment vehicle owned by the Malaysian billionaire Ananda Krishnan – led to yesterday's proposal to issue 320 million new shares in a deeply discounted rights issue priced at 53p, or a 61 per cent discount on the previous day's close.
As part of the rescue package, Usaha Tegas is to buy a 10 per cent stake from the Johnston family, taking their holding down to just 8 per cent. The Malay group will also acquire another 10 per cent directly from the company, making it the largest single shareholder and allowing the nomination of a new board member.
Usaha Tegas is controlled by one of Malaysia's top tycoons, Tan Sri Tatparanandam Ananda Krishnan, nicknamed Tak, who originally made his money in oil trading. The man behind the Petronas Twin Towers in Kuala Lumpur, Mr Krishnan's empire spans a diverse range of businesses, from gaming, property and cartoons to telecoms, media, power, shipping and even stud farming. A spokesman for Usaha Tegas said it had neither ruled out nor ruled in building up its stake in Johnston Press.
Johnston Press has suffered from the impact of the internet on traditional media. Typically, three-quarters of its revenue comes from ad sales but income is on the slide across nearly all its major revenue streams. Last year, classified jobs were down 3.3 per cent, motoring was down 8.2 per cent and display was down 4 per cent, pushing annual pre-tax profits to December down by nearly £7m, the group reported in March. And with economic conditions worsening, the slump shows no sign of abating – Johnston's advertising income fell another 4.2 per cent in January and February this year. "In issuing new shares, we are essentially addressing two issues," Mr Bowdler said yesterday. "First, that the advertising environment is getting more difficult and the economy we are operating in is not looking great, and second that our balance sheet had too much debt in the context of that environment."
The money raised in the rights issue not only stabilises the group's debt position, incurred through a series of expensive acquisitions, including The Scotsman in 2005. It also provides much-needed funds for modernisation. "Going forward, we are looking for a combination of two things – to continue to invest in our core print advertising business to ensure it performs the best it can in current market conditions, and also to invest in the growth of digital activities and new revenue streams," Mr Bowdler said.
Notwithstanding yesterday's slump of more than 15 per cent in the group's share price, the strategy does put the company's ailing finances back on a firm footing for the foreseeable future. But the impact of the changes in ownership will be considerable.
Lorna Tilbian, the head of media research at Numis, said: "It is a sad day for the family, and it will mean big cultural changes for the company, but it does mean it can pay down its debt and ensure that however deep the downturn it will still be in business for the upturn.
"The tragedy is for the Johnston family, but it is better to have a smaller share of a vibrant business than a bigger share of something that goes under. The investment makes sense for Usaha Tegas because there is still a dependable cash flow from regional newspapers, so long as people work and spend money within a 7.5 mile radius of their home."
As the list of financial institutions using rights issues to shore up their ailing finances grows longer, Johnston Press is the first non-banking company to pursue a similar course. But it is not expected to be the last. One City analyst said: "So far, the rights issues have not spread outside the banking sector, so the company was wise to get in early before trading deteriorates. The advertising environment is getting worse and Johnston Press is heavily geared into that, but the valuation is still very low, and historically companies with distressed rights issues tend to be very strong outperformers in the subsequent six months to a year."
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