Daily Mail group forced to dump sale of local titles

DMGT had shocked the City in November when it said it would auction off Northcliffe, its huge stable of regional newspapers that had been part of the company for 80 years. Investors were equally surprised by the U-turn announced yesterday.

City sources also said that the competition for the assets was not as fierce as DMGT might have hoped for, after two of the interested parties, the private-equity groups CVC and Candover, joined forces, and another, Gannett, was distracted by the simultaneous sale of the Knight Ridder newspaper assets in its home market in the US. The third bidder in the later stages of the auction, which kicked off at the end of November, was the private-equity group Providence.

It is thought that bidding came in at £1.2bn or less in the second round of the auction earlier this month, well below the £1.3bn to £1.5bn range that had originally been expected. Northcliffe's papers include the Leicester Mercury and the Bristol Evening Post.

Some investors and industry figures have expressed concern that the internet will eat away at the classified advertising revenues that are the lifeblood of local papers.

DMGT furnished the bidders with up-to-date trading information that is not available to the outside world yet. This showed that while the last three months of 2005 came in as expected, revenues started to drop in January this year and the decline accelerated considerably in February.

The company said: "The offers reflected the recent downturn in trading in the regional newspaper sector caused by the weakening of the broader UK economy. In the view of the board, the offers did not fully reflect the long-term value of the business."

Peter Williams, DMGT's finance director, denied suggestions that the industry was suffering from structural decline. "It's tough, across the newspaper sector. But we've still had some pretty substantial offers from some pretty savvy people. They don't think this business is fading away to nothing. Nor do we."

In November, DMGT had said that it had decided to sell because it would not be able to take Northcliffe's profits margins, of some 20 per cent, up to industry-leading margins of 30 per cent or more without compromising editorial standards.

Yesterday, the company said the review of Northcliffe it has been conducting, at the same time as running an auction of the business, had shown that greater cost-savings were possible.

Charles Sinclair, DMGT's chief executive, said: "The value gap we saw between our ownership of the assets, and what others could do with them, has closed." He said the company would move as quickly as possible to improve profitability to the level of its peers, and that this could be achieved without editorial compromises.

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