Mail and Guardian drop out of 'Herald' auction

Daily Mail & General Trust and Guardian Media Group appear to have dropped out of the running for the Herald newspapers after the bidding reached a level that they were not prepared to pay.

The media companies, which were seen as front-runners for The Herald and Sunday Herald, have "stepped back" from the process following the first round of bids. SMG put the titles up for sale last month.

It is possible that DMGT and GMG could re-enter the race for the 200-year-old Glasgow papers but not if the price remains at the current level. For the moment the two companies, which declined to comment, are among several groups that had expressed interest but are no longer in the contest.

Some eight bidders have emerged from the first round of the auction, with the Barclay brothers understood to have tabled the highest offer of £220m. There are believed to be one or two other offers at more than £200m.

One industry source: "DMGT is not doing anything further right now but they are still on the periphery. Something north of £200m may be justifiable for some people but it does not make sense for them. It is not a must-have for DMGT."

DMGT owns the Aberdeen-based Press & Journal and has a printing contract with the Herald's plant but it does not believe there are major synergies in owning the SMG titles.

The Barclays, who own The Scotsman newspaper, would face the most formidable regulatory hurdles but they have bid through their Ellerman Investments vehicle. This tactic attempts to separate the bid from the ownership of Scotsman Publications.

It is thought that some regional newspaper groups remain in the race for The Herald, probably Gannett, Johnston Press and Archant. Also still in the running is a consortium that includes Independent News & Media, publisher of The Independent, and a financial backer.

Among the private-equity players, David Montgomery, the former chief executive of Mirror Group, is fronting a 3i bid, while Chris Oakley, formerly of Regional Independent Media, is heading a bid from Candover.