Desmond withdraws bid for 'overpriced' Telegraph

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Richard Desmond, the media tycoon, has been expelled from the race to buy The Daily Telegraph because his bid was far below that of rivals, including the Daily Mail.

The top initial offers for The Daily Telegraph, The Sunday Telegraph and The Spectator magazine, which have been put up for sale as a package, are thought to be close to £700m. It had previously been thought that the papers would fetch about £500m.

Mr Desmond, who owns the Daily Express and a string of magazines including OK!, thought the bidding had reached levels that were not sustainable for the business. A spokesman for his company, Northern & Shell, said: "We were in the process to buy a business, not a trophy asset."

Mr Desmond's arch-rival, The Daily Mail & General Trust, publisher of the Daily Mail, Mail on Sunday and London's Evening Standard, is still in the race. The Barclay brothers, Sir David and Sir Frederick, who are believed to have bid very aggressively, are also under consideration.

Industry sources said Gannett, the American newspaper group that owns USA Today and a huge stable of local papers in this country, and 3i, a financial group that is advised by David Montgomery, the former chief executive of the company that publishes the Daily Mirror, were also still in the race.

Hollinger International, the media company formerly run by Lord Black of Crossharbour, put its newspapers for sale in November. As well as the London titles, it owns newspapers in Chicago and Israel.

After several false starts - as a result of Lord Black resisting the sales process - interested parties were told to submit offers by the end of Tuesday.

Yesterday, those who had not bid high enough were told to either increase their bids or be excluded from the next round. There are about 10 runners still in the bidding.

Mr Desmond, who made his fortune in pornography, was told that his £500m bid was so far below the leading contenders that there was no point in him going on. "He was thrown out," one insider said. A spokesman for Mr Desmond said the Telegraph was not worth the sort of money now being offered for it.

He had been thought of as one of the favourites to secure the newspaper.

An auction of the newspapers owned by Hollinger is being conducted by the City bank Lazards. Those allowed into the next round of the contest will be provided with more financial information on the titles and will receive presentations from Telegraph management on the future prospects for the newspapers.

Westminster insiders believe that Tony Blair and ministers close to him will not want to see the Daily Mail take control of another major national newspaper.

The bid will also have a tough job getting past competition authorities, as the group already controls a fifth of the national newspaper market. Although the Barclay brothers own The Scotsman and The Business, the publications' small readership means that they face no significant competition hurdles.