Scrutiny for Telegraph deal

INDEPENDENT directors of Conrad Black's Telegraph newspaper group have called in outside advisers on both sides of the Atlantic to examine a sensitive proposal for it to buy an asset from another part of Mr Black's empire, writes Patrick Hosking.

A committee of Telegraph independent directors, under Lord Swaythling, chairman of the audit committee, want to assure themselves that the deal is in the interests of all shareholders.

The proposal is for The Telegraph to pay pounds 70m for an 11.25 per cent stake in Southam, the Canadian news group, to Mr Black's Toronto-based Hollinger Group.

The UK adviser chosen by the independent directors is NM Rothschild, which is also The Telegraph's lead merchant bank.

If the committee approves the deal, it then goes to the board and then to a vote of shareholders at an extraordinary meeting pencilled in for the end of March. Hollinger, which owns 68 per cent of The Telegraph, will not be allowed to vote its shares.

The Telegraph, which also hopes to lift its stake in the Australian publishing group John Fairfax this year from 15 per cent to 25 per cent, would have to raise about pounds 80m for the two deals. Joe Cooke, managing director, said no decision had been made on whether the money would be raised through extra borrowings or a share issue.

On the planned investment in Southam, he said 17 of its provincial papers had no serious competitors - 14 were monopolies and three were market leaders. 'All will be revealed when the circular comes out, probably in March.'

The group, which publishes the Daily Telegraph and Sunday Telegraph, yesterday reported a 9 per cent rise in pre-tax profits to pounds 44.3m in 1992.

However, earnings per share fell 6 per cent to 23.8p because of a jump in the tax charge from 16 to 27.25 per cent. It will rise sharply again this year to over 33 per cent, the group warned.

A final dividend of 6.5p makes an 11p total - 1p more than the forecast at the time of The Telegraph's flotation last July.

Profits of pounds 5.9m from associated undertakings, mainly the Fairfax stake, boosted the pre-tax figure. However, net interest received declined from pounds 7.8m to pounds 900,000.

The Spectator made a profit of pounds 8,000, the first surplus for the magazine since records began.

Lord Swaythling, chairman of Rothmans International and a former merchant banker, left for a holiday on Wednesday and does not return until 8 March.