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No Sassenachs please, we're Scottish

The media north of the border is a small club that will get clubbier if Scottish TV takes over two Glasgow papers. But at least that would keep them out of English hands, says Andrew Jaspan
Most of the players in Scotland's exclusive and at times fractious media village have at one time or another worked for each others' companies. Gus Macdonald, who runs Scottish Television, once worked for the Scotsman before moving to Granada, while Liam Kane, who runs Caledonian (publisher of the Herald and Glasgow Evening Times) once worked for News International, where he became chums with David Montgomery, who runs Mirror Group and its Scottish flagship, the Daily Record. The man who runs News International in Scotland, with its tartanised Scottish Sun, used to run the Daily Record. And so it goes on.

Lost? Well, unless you understand the dramatis personae you miss the real fun going on. What concerns some fearful folk is that Scottish Television's pounds 120m bid made last Thursday for Caledonian would result in the west of Scotland and Glasgow being dominated by one multimedia company. Should the bid go through, and there is little doubt that it will be cleared, then Scottish Television will own Glasgow's daily, evening and freesheet newspapers and a number of magazines and electronic publishing ventures - becoming easily the UK's biggest regional concentration of media power.

All well and good, at least say some in Scotland. But then into the frame steps David Montgomery, the Irish chief executive of Mirror Group, and some fainthearts reach for their salts. Montgomery, through the Mirror Group, runs the Scottish Daily Record and Sunday Mail, and his company has a 20 per cent holding in Scottish Television, where he sits on the board.

Before joining the Mirror Group and STV, Montgomery was on the board of Caledonian and remains friends with Liam Kane, its chief executive. All three, Macdonald, Montgomery and Kane, share the multimedia vision in which many backroom functions are shared - printing, advertising, circulation and accounting functions, databases and pictures. However, the titles retain separate editorial control and "brands" in the market. This is how the Independent, 46 per cent owned by the Mirror Group, operates, and the approach is increasingly in use in the rest of Fleet Street.

When Kane led the management buy-out team that bought the Herald and its sister titles in 1992 for pounds 96m from Tiny Rowland's Lonrho, great fanfare was made over the titles returning to Scottish and independent ownership. However, the past four years have been difficult ones for the stand-alone company, as it had to come to terms with reducing costs, the trebling of newsprint prices and the newspaper price war. The Herald (at 48p, Britain's most expensive daily newspaper besides the FT) has been remarkably resilient, seeing sales drop a little at the height of the price war but now stabilised at more than 110,000.

But the biggest problem facing the MBO team was that no matter how hard they pedalled the bike they couldn't get out of their hole - namely, working for the banks through servicing their pounds 66m debt. The merchant bank Robert Fleming & Co, who with 57 per cent of the equity remains in effect the owner of the papers, has wanted to sell out for some time but realised that it had to wait for market conditions to improve. The bankers had also indicated that they would prefer to sit out for a Scottish buyer.

In April this year, Caledonian announced that they would float the company and began preparing a "pathfinder" prospectus. STV's Macdonald decided on a twin-track approach, based on either mounting an all-out bid for Caledonian or buying into the company. On that basis, Caledonian granted STV access to the books.

Last week, Caledonian changed tack and opted to suspend its flotation and instead seek an agreed takeover by STV. One of the reasons may have been that it found City institutions sceptical of regional newspaper flotations after the lacklustre performance of Birmingham's Midland newspapers and the heavy call on funds made recently by Trinity (to buy up most of Thomson Regional Newspapers) and Johnston Press (to buy up Emap's regionals).

From Caledonian's perspective, many people also favoured retaining some control over what happened to the papers by selling to a Scottish company instead of throwing their fate into the winds of the marketplace. There remains one fly in the ointment, and that is Trinity, which through its merchant bank Barings has announced that they too would like to bid for Caledonian. In the case of Trinity, the swallowing up of Caledonian would lead to many of its functions and, of course, ownership moving south to Liverpool.

Would a dominant STV be bad for Scotland? To answer this, it is important to understand that the distinct and separate nature of the Scottish press has been eroded over the past few years as the English titles have looked avariciously across the border to boost sales. Rupert Murdoch's News International titles, chiefly through the Sun and Sunday Times, are heavily editionalising, while the Daily Mail nearly two years ago cut its cover price to 20p and has seen sales double to almost 100,000. The Daily Express followed.

This competition hit Scotland's main daily newspapers, the Scotsman, the Herald and the Daily Record, although Aberdeen's Press and Journal (now owned by the Daily Mail group) remains largely unaffected and now boasts Scotland's largest daily sale. As a result, the future of the Scotsman and the Herald as stand-alone newspaper groups looks increasingly threatened.

Over the years, one of the chief gripes in Scotland has been how so many of its companies have been taken over only to see their headquarters move south. As part of Scottish Television, Caledonian would remain owned and managed in Scotland and would help to create a strong media group with a distinctive Scottish voice.

There has been speculation that STV and the Mirror Group might want to rationalise the whole media scene in Glasgow by moving the Caledonian newspaper staff into the Daily Record building at Anderston Quay and printing the titles at the Mirror Group's new Cardonald plant. That would allow Caledonian's Albion Street building and presses to be sold, and provide obvious cost savings. Even so, I am told that STV is not considering this option, since it feels that although there can be some strategic alliances between all the papers, the Herald and Evening Times ought to remain as stand-alones and separate from the Record.

With the fire-power of STV, the Herald would get regular promotional access to the Scotsman's heartlands in the east and challenge it in a way it has been unable to do for more than 200 years. The Scotsman group would be forced to forge strategic alliances of its own to counter such a heavyweight domination of the market. But through the Barclay brothers' aggressive and expansionist new management, the papers ought to prove sufficiently robust to any such challenge. They have also launched a price war by cutting the cost of Scotland on Sunday to 50p, and it is expected that they will do the same with the Scotsman in an attempt to push its sale of about 80,000 above 100,000. Their only real fear is that the new STV/Caledonian group might try to launch a Sunday based on the west of Scotland to compete with SoS.

And is this proposed merger likely to go through? Yes, given that Labour, the SNP and the Tories in Scotland have given the takeover the green light. The only danger down the line is that this new media grouping may prove irresistible to a beady-eyed predator. But then Gus Macdonald is a canny fighter who saw off cross-border raiders last time his TV licence came up for renewal and was able to get away with regaining his franchise for only pounds 2,000, allowing him to build up a pile of cash. Now is the time to use it, and indulge in his dream of building a media empire strong enough to force any Sassenach colonisers to think again.

The writer is former editor of the 'Times in Scotland', 'Scotland on Sunday', the 'Scotsman' and, most recently, the 'Observer'.