Scottish TV pays pounds 120m for publisher

The embryo of the first all-Scottish multi-media group was created yesterday when Scottish Television announced the takeover of Caledonian Publishing.

Taking advantage of changes to cross-media ownership rules that for the first time allow television companies to control regional newspaper groups, Scottish, the ITV franchise holder for Central Scotland, is paying pounds 120m for Caledonian, publishers of the Herald and the Evening Times in Glasgow.

Announcing the final offer yesterday, Gus Macdonald, chairman of STV, said the merger would "bring together strong brands and allow the company to better target the key demographics of interest to advertisers".

The offer, in cash or alternative loan note, values the company at about 15 times current year forecast earnings, compared with about 19 times for other quoted regional newspaper groups.

The agreed deal has already received the approval of shareholders representing 83 per cent of the shares, STV said yesterday.

Caledonian's chief executive, Liam Kane, will leave the company once the formal hand-over is completed. Caledonian will be run by Andrew Flanagan, STV's managing director.

Mr Kane had been part of the management group that bought the titles from Lonrho in 1992, and had been eager to take the company public through a flotation. Those plans were abandoned in favour of negotiations with STV when it became clear that the target of at least pounds 100m was unlikely to be reached.

Mr Kane, who had been given an opportunity to stay, is believed to have preferred to look for a senior position elsewhere, rather than work within the STV group management. STV said it could achieve annualised savings of about pounds 3m, and that the acquisition would be earnings-enhancing. Mr Flanagan added that STV intended to invest further funds in the business, particularly to expand the multi-media and magazines businesses, but said he could not guarantee there would be no job losses. The merger has won the support of the main political parties in Scotland, but must still receive regulatory approval.

Both the Independent Television Commission and the Office of Fair Trading are expected to review the deal.

Mr Macdonald said that the merger made sense on the basis of synergies between the two companies, and was not dependent on further cost-sharing that might be achieved with STV's 20 per cent owner, Mirror Group.

It has been suggested that the Mirror's Scottish titles, particularly the Daily Record, could share some costs with the Herald and the Evening Times.