View from City Road: Questions for the Telegraph

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The Independent Online
THE TELEGRAPH's last-minute announcement yesterday that it was considering taking a stake in Southam, the troubled Canadian newspaper group, shed some light on its earlier disclosure that it had sold its 13 per cent holding in Trinity International, the regional newspaper company that owns the Liverpool Echo.

The pounds 26.8m raised by the Trinity sale will go some way to meeting the pounds 70m bill the Telegraph will face if it gets approval to go ahead with the deal, with the group's cash resources topping the sum up to around 75 per cent of the cost of the acquisition.

The deal itself involves the Telegraph purchasing half the 22.5 per cent stake in Southam held by the Telegraph's parent company, Hollinger, the Canadian media group. The tangled nature of the transaction - Hollinger, which bought the stake in November for pounds 135m, is controlled by the Telegraph's chairman, Conrad Black - means both the Telegraph's independent directors and its shareholders other than Hollinger (which has 68 per cent) will need to vote in favour of the arrangement.

Before making up their minds, they will need a lot more information about the underlying direction in which Mr Black wishes to take the Telegraph, and what he proposes to do with Southam.

At the time of the flotation, the general expectation was that a co-operation agreement between the Telegraph and Hollinger would divide the globe into distinct territories, with Hollinger taking the US, Canada, the Caribbean and Israel, and the Telegraph the remainder. The link with Southam, while not breaching the letter of this agreement, would certainly represent a switch in the group's horizons.

Minority stakes, especially in overseas companies, are difficult enough for shareholders to understand and evaluate. Add in an element of intercompany dealing and the complexity becomes daunting indeed. It may be that the Southam deal will prove to be a good one for the Telegraph - the Trinity stake, for instance, which generated a pounds 6.5m profit for the group, was originally owned by Hollinger.

But the links between Hollinger and the Telegraph did dampen enthusiasm for the flotation last summer. The benefits of the Southam stake need spelling out clearly.

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