Telegraph chief spurned high-tech golden egg

MATHEW HORSMAN

Conrad Black's Hollinger group turned down a chance to earn more than $100m (pounds 65m) in pre-tax profits by deciding not to invest in Netscape, a high-flying American high-tech company, at bargain-basement prices last year.

The Toronto company, which owns 58 per cent of Telegraph group, was offered the equivalent of 4 per cent of Netscape for $4m. The company was floated at $28 a share earlier this year, rising as high as $74 3/4 on its first day. The stock declined to the high 40s, and was trading last night at about $50, valuing the company at $2bn.

At its high, a 4 per cent stake would have been worth $112m. That would have left Hollinger with a paper profit of $108m, equivalent to 3.5 times 1994 operating profits at Telegraph group, or enough to give away every copy of the Daily Telegraph free for 209 consecutive days, or roughly seven months. Even at last night's price the stake would be worth $75m.

"With hindsight, it would have been a brilliant portfolio investment," Daniel Colson, chairman of Telegraph group and a director of Hollinger, conceded yesterday. "But we took the decision that we would have little or no control over the strategic direction of the company."

All the same, it appears that Hollinger had been offered the prospect of board representation and a chance to get Netscape technology early to develop its own multimedia applications, including the "electronic" Telegraph. Mr Colson added that Hollinger and Telegraph group continue to look at investment opportunities in the multimedia sector.

Netscape, which provides "navigation" software for the Internet, went through three financings before the initial public offering on 9 August. In the first, Netscape founder James Clark made his initial investment. A second issue, consisting of preference stock convertible into common shares, was bought principally by venture capital company Kleinwort, Perkins, Caufield and Byers, a San Francisco firm.

In the third issue, also of convertible preference stock, Netscape and its New York advisers offered stakes convertible into as much as 5 per cent to various media and software companies, concentrating on those that did not compete directly with Netscape or that were essentially "content" providers, such as newspaper publishers. Several well known US companies took stakes of between 1 and 2 per cent. They included publishing giants Knight-Ridder, the Hearst Corporation and Times-Mirror as well as software developer Adobe and cable giant TCI.

Hollinger was given its chance to buy shares in the third stock issue by US investment firm Morgan Stanley, acting for Netscape. A team from London did due digilence and recommended that Hollinger and/or its associate companies buy the stock.

But concerns about the cost of funding the group's Australian aspirations, as well as the then-mooted buyout of Telegraph minority shareholders, persuaded Mr Colson and Mr Black not to proceed.

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