The venture capital group 3i and a long line of trade buyers will compete to buy The Herald, the 200-year-old Glasgow newspaper put up for sale yesterday by SMG.
The Scottish media company, under pressure to reduce debt, said it wanted at least £200m for its publishing division, which includes The Herald and Sunday Herald broadsheet newspapers and the Evening Times tabloid. SMG had been expected to make disposals but many thought it would divest some of its other assets, such as its Scottish and Grampian ITV franchises or Virgin Radio.
The Edinburgh-based Scotsman Publications, owned by the Barclay brothers and managed by the controversial Andrew Neil, heads the queue of trade buyers for The Herald. The paper is a rare asset with a strong hold over the west of Scotland. Interest can also be expected from other media groups, including Daily Mail & General Trust, Johnston Press, Trinity Mirror, Guardian Media Group, Gannett, and Independent News & Media, publisher of The Independent.
Reporting interim results yesterday, SMG revealed that it had already received a number of approaches for The Herald but declined to provide any names. Market sources said several private equity houses will make a bid, while 3i is said to have made its interest known to SMG.
Given SMG's need to cut its £400m debt pile quickly, ahead of a refinancing due next year, it may prefer a financial buyer. Potential trade purchasers would face a full referral to the competition authorities, which could delay a deal by up to six months. Scotsman Publications would encounter major regulatory hurdles but so would Trinity, publisher of the Daily Record, which is also based in Glasgow.
Mr Neil is known to want to add The Herald's Glasgow readership to The Scotsman's Edinburgh base. This may result in a merger of the two titles, but Mr Neil will face fierce opposition from the Scottish political establishment. The Scotsman has been criticised for pursuing a right-wing, "anti-Scottish" agenda under Mr Neil's control, which has also seen a rapid turnover of editors and a steep fall in circulation.
Alex Salmond, former leader of the Scottish National Party, said he was concerned about maintaining jobs and competition in the Scottish market and also feared for the editorial independence of The Herald, which is viewed increasingly as the paper of record in Scotland.
"The idea which has been associated with Andrew Neil to merge The Herald and The Scotsman would be a particularly daft and undesirable outcome," Mr Salmond said.
Regional newspapers have proved to be resilient businesses in the current advertising downturn, though analysts at Investec yesterday valued SMG's publishing division at £110m. For the six months to 30 June, operating profits at SMG's publishing division increased by 6 per cent to £8.5m. Group pre-tax profits fell to £11.5m, from £20m last year. SMG said one reason it had put The Herald up for sale was that its ad revenues came from mostly local sources, with just 10 per cent coming from national advertising. After selling the publishing arm, the group said it will focus on its other media assets, which rely much more heavily on national advertising revenues.
Andrew Flanagan, SMG's chief executive, said: "Our strategy of focusing SMG's development on a cross-media approach with national positions in the faster-growing media sectors, means that publishing is no longer core to the group."
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