US giant Gannet buys Newsquest for pounds 904m
Friday 25 June 1999
The buyout marks the second time in as many weeks that a US market leader has stormed into Britain. Last week, Wal-Mart, the retailer, snapped up supermarket chain Asda in an agreed pounds 6.7bn takeover.
Buying Newsquest, which publishes The Northern Echo, the Brighton Evening Argus and 180 other newspapers, places Gannett in the front line of publishers pushing to consolidate ownership of Britain's regional newspaper sector. In conjunction with other publishers, Newsquest has also developed a growing Internet business drawing on the classified advertising published in its newspapers.
For Gannett, which owns USA Today, seventy-three other US daily newspapers and extensive television and cable interests, the takeover marks its first significant acquisition outside the American market. Last year, the company generated net income of pounds 629m on sales of pounds 3.2bn. Gannett's cash offer of 460p per share represents a meagre 8.7 per cent premium to Newsquest's closing price on Wednesday of 423p per share. The UK group's shares rallied 32p yesterday to close at 455p.
The absence of a substantial premium saw Newquest non-executive directors stop short of formally recommending the offer. But shareholders accounting for nearly 52 per cent of the stock tendered immediate acceptance. They included US leverage buyout firm Kohlberg Kravis Roberts with a 37 per cent interest, pension fund manager Cinven with 12 per cent and management, led by executive chairman Jim Brown, with 1.9 per cent.
They have pledged to accept the bid if no competing offer in excess of 495p is received within seven days.
It is understood that the non-executive directors' position was because Gannett's offer lacked a sufficient premium. Others believed that the valuations of newspaper groups have become "frothy", according to one non-executive director, following the recently concluded bid battle over Portsmouth and Sunderland Newspapers and a continuing tug-a-war between Trinity and RIM over Mirror Group.
Newsquest was created by the KKR-backed buyout of Reed Newspapers and the later purchase of Westminster Press from Pearson. It floated on the Stock Exchange in August 1997 at 250p. The agreed offer represents an 82 per cent return in 22 months.
Mr Brown will receive pounds 6.5m for his stake. Group managing director Paul Davidson and finance director John Pfeil will each receive almost pounds 5.5m. Existing management is to remain in place.
"Newsquest have a wonderful mix of traditional daily newspapers mixed with free and paid weeklies, and letterbox papers," said Doug McCorkindale, the vice chairman and president of Gannett.
Asked whether limited competition in the regional sector made the newspapers more attractive to buyouts, Ned Gilhuly, a Newsquest non-executive director appointed by KKR observed: "I think that's a fair comment."
He added: "I do think there's going to be continued consolidation over time. It's driven by the favourable economics that consolidation brings about. There's clearly been a trend in that direction and that will continue."
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