It's like watching two run-down old elephants perform a dance

The 'Daily Mirror' is in play, and a takeover by Germany's Springer group looks likely. It may prove embarrassing for the tabloid's top men

Imre Karacs,Peter Koenig
Saturday 30 May 1998 23:02
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THE joke was as satisfying as a good headline. In 1996 the Daily Mirror, edited by Piers Morgan, headed a story about a forthcoming football game between England and Germany "Acht- ung! Surrender!" Last weekend news filtered out of a proposed takeover of the Mirror by Axel Springer Verlag of Hamburg, publishers of Germany's tabloid, Bild. The symmetry was nothing less than fearful, for the headline on the story had to be "Achtung! Surrender!"

Now for a news update. For the moment Morgan and his editorial supremo Kelvin MacKenzie, who is no mean headline writer himself, can breathe more easily. If it does go ahead, the purchase of the Mirror Group by Springer for something in excess of pounds 1bn is going to happen slowly. Watching Springer buy the Mirror Group is probably going to be like watching two extremely tired, run-down old elephants perform a mating dance.

Kelvin and Piers are not off the hook. The marriage seems more likely to be consummated than not. There is a commercial logic to the deal. Springer and the Mirror Group combined would constitute Europe's seventh largest media company, according to rankings produced by CIT Publications - making it much the same size as Pearson, publisher of the Financial Times. That would give Springer more leverage in the consolidating global media market. A deal would make a lot of people a lot of money.

IN RECENT months the Mirror Group seems to have lost its way now that the policy of deep cost- cutting forced through by the company's chief executive David Montgomery has exhausted itself on the skeletal remains of his papers. The new hope of investors backing the Mirror Group is Kelvin MacKenzie whom the City - in its present New Labour egalitarian mode - likes as an Essex Man with rat-like cunning and the editorial nous to breathe new journalistic life into the group's tired titles, all of which are suffering from falling circulations.

Sceptics forget that after the previous Mirror Group boss Robert Maxwell drowned off the Canaries in 1991, the company's shares were changing hands at 50p. On Friday they were trading at 245p. A buy-out by Springer would command an additional premium. Most of the Mirror Group's shareholders will reap substantial profits.

Some specialist analysts believe that Springer, plus the Mirror Group, would give Europe's biggest media companies - Bertelsmann, Havas, Lagardere - a run for their money. The cross-pollination of Bild and the Mirror, so the argument goes, would rejuvenate all titles. "It would be rather interesting," says Martin Clarke, a professional investor at PDFM, the City fund manager which owns 23 per cent of the Mirror Group. "An Anglo- German group would all be part of the new Europe."

Another investor adds: "Some- body someday is going to crack the problem of running tabloid newspapers across borders." The idea is that Springer and the Mirror Group could not only share costs on newsprint, they could also pool journalistic resources to chase cross-border stories focusing on international celebrities.

The principal obstacle to such an evolution in Europe's newspaper market is the shaky state of play inside the German group. And that news comes from sources inside Axel Springer. At the company's helm stands an improbable trio. There is the founder's widow; there is a blind, 71-year-old TV tycoon from Bavaria, and a 59-year-old former lieutenant of Rupert Murdoch named Gus Fischer, who is now Springer's chief executive.

The widow first. Friede Springer, 55, met her future husband while working for the family as a nanny. When Axel's then wife learned of the liaison, Friede was sacked. The newspaper magnate made amends by divorcing his - fourth - wife and marrying the au pair in January 1978. She was 30 years his junior.

Despite the age gap, their relationship was strong. When Axel fell terminally ill, his doting wife nursed him. He died in 1985 naming three people, including his widow, as executors of his will. The legacy included shares in Bild, Europe's biggest-selling tabloid, which at the time was selling 5.2 million copies a day. Axel had founded Bild in 1952 and modelled it on the Daily Mirror of the day. Also in the Springer stable was Die Welt, a mid-range broadsheet he had bought from the British occupation forces in 1953.

From his base in HamburgAxel built an empire of profitable local newspapers, listings magazines, youth publications, and printing plants. All Springer publications were anti-communist. To this day new employees must pledge allegiance to Germany's democratic system and social market economy.

In 1967 Axel moved headquarters to a tall building next to the Berlin Wall. It was Berlin's fate, he declared at the height of the Cold War, to be "Germany's past and future capital". He was close to conservative politicians of the day and loathed by the left. An investigative journalist, Gunther Wallraff, took a job at Bild and exposed the paper's editorial process. Bild's relentless hounding of leftists inspired the student protests in Frankfurt in 1968 as well as Heinrich Boll's denunciation of the gutter press, The Lost Honour of Katharina Blum. The climax of the left's hate campaign against Springer climaxed in a 1972 bomb attack on its Hamburg offices by the Baader-Meinhof terrorist group.

Ms Springer did not inherit all of this. Axel bequeathed a complicated ownership structure, with shares held by a wide range of persons and companies, partly as a result of his son's untimely death and his determination to leave his papers in the hands of people he trusted. Through a long series of battles, nevertheless, Friede has assembled a controlling stake in the company, buying out other heirs and shareholders, often at a huge premium. She now owns just over 50 per cent of Axel Springer Verlag.

Much of the rest - over 40 per cent - is owned by Leo Kirch, the reclusive Bavarian mogul who has made his fortune buying German TV rights for Hollywood films. Kirch has been trying to take over Springer for more than a decade, but has been beaten back by the widow.

Kirch and Friede say they want the same thing - to make Springer more international. But since 1987, when they first announced their new tack, not much has happened, except for the acquisition of local rags in east Europe. Meanwhile Bertelsmann, which was once dwarfed by Springer, has got its international act together. Last month, indeed, Bertelsmann bought the venerable book publisher Random House from S I Newhouse, the owner of Conde Nast. Spri- nger's turnover abroad accounts for only 13 per cent of the total.

Enter Gus Fischer, who worked at chemical company Du Pont before being brought to London in 1989 by Rupert Murdoch. Fischer lasted two years at News International, publishers of the Sun and Times, before the two men parted company on reportedly less than happy terms. Nevertheless, in Germany it is believed that it was Fischer who brought Murdoch and Tony Blair together, presaging the Sun's political conversion.

Fischer returned to Switzerland and worked as a media consultant while successors to Axel Springer were destroying each other in scenes reminiscent of the Borgias. Fischer's main client was Leo Kirch. It was Kirch who recommended Fischer as chief executive of Springer.

Springer's profits are strong, and rose by 28 per cent last year. But the sense of the market is that the German company, like the Mirror Group, has no clear path ahead. Bild's circulation is down to 4.5 million and Welt has never made a profit.

Fischer's mandate is to internationalise Springer at last, although company insiders say opinion on a bid for the Mirror Group is divided. There is a question mark over Kirch's empire, which suffered a setback last week when the EC vetoed a plan for Kirch, Bertelsmann, and Deutsche Telekom to pool their digital and pay-TV interests because it would be monopolistic.

UNDER the aborted deal Bertelsmann would have pumped money into Kirch. Now the cash injection will not happen. Critics say Kirch will have to scramble for funds to pay for the American programming he had lined up for the new venture. Moreover, his shares in Springer are already pledged as collateral to Deutsche Bank. Who controls this 40 per cent block of Springer and what interest the owner shows in the the Mirror deal is the biggest question mark hanging over the future of Kelvin MacKenzie and Piers Morgan.

This confusion is the reason why the City starts talking about other bidders for the Mirror Group. One has been smoked out: Trinity, the Chester- based publisher of the Liverpool Daily Post and Echo, the Crawley News, and other regional titles.

However, the joker in the pack is none other than Rupert Murdoch. He has long talked to Kirch. In February 1997 News Corp cancelled plans to take a stake in Kirch's doomed digital TV operation, DF-1. There are reports that he is talking to Kirch again. Murdoch reportedly spent Oscar night in Hollywood ignoring the success of his Fox film unit's Titanic and spending time shmoozing with Friede Springer, hoping that she would sell her stake in the German group to him. Friede supposedly said no.

The City now seethes with rumours about the Mirror Group on the assumption that somebody will soon buy it. Panmure Gordon media analyst Anthony de Larrinaga thinks the Mirror's national titles could go to an international buyer while its regional titles go to a local buyer. Teather & Greenwood media analyst Derek Terrington says: "We've had the early exchanges. People have withdrawn to their camps. Now we'll see."

Stand by for more jokes.

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