Newsquest poised to scoop up 'Daily Mail' regional titles

The UK's second-largest regional newspaper publisher is in pole position to take control of the Daily Mail and General Trust's Northcliffe Newspapers division. Ian Burrell examines the deal

Two months after the Daily Mail and General Trust released the bombshell news that it was to sell off the regional newspaper arm of its business, a clear front-runner has emerged in the race to acquire some of the most famous titles in British journalism.

Informed industry sources believe that the Newsquest group, already the second largest regional newspaper publisher in the UK, is now in pole position to take control of DMGT's Northcliffe Newspapers division, which owns such titles as the Western Daily Press, the Leicester Mercury, the Nottingham Evening Post and the Aberdeen Press & Journal.

Newsquest, which already has a portfolio of newspapers that includes the Brighton Argus, the Bradford Telegraph & Argus, the Northern Echo and the Oxford Mail, would be able to buy the Northcliffe titles for some £1.5bn, sources say. Other regional groups, including the fast expanding Johnston Press, are also keen on Northcliffe but Newsquest is likely to face less regulatory hurdles in completing the acquisition.

Although the Competition Commission could block a deal that gives a single group more than 25 per cent of the market, Newsquest is understood to be willing to sell off parts of its business that might prove problematical.

Johnston, meanwhile, is hamstrung by its comparatively large amount of debt and its recent rapid growth in acquiring a string of new titles in Scotland and Ireland.

The second round of bidding for Northcliffe, which takes place this week, will focus further attention on the fortunes of DMGT, coinciding as it does with the launch of an Irish edition of the Daily Mail.

Writing in the New Statesman last month, Peter Wilby described the Northcliffe sale as "by far the most significant press event of 2005". Other industry observers agree, pointing out that it is an unprecedented act in the history of the Rothermere newspaper empire. Deutsche Bank analysts noted that it was a "a deal that few would have foreseen" and described the moment with the German word torschlusspanik ("door-shut-panic").

Peter Williams, the DMGT finance director, moves to clarify the reasons for the sale. "It's not that we think business is going to disappear to the internet. We have just gone through all the businesses here and we've said this is a fantastic business but in the long-term - and we do take a very long-term view - the growth opportunity is limited. They are so strong in their localities and can grow only as fast as those localities," he says.

Williams says DMGT was not prepared to foot the high cost of consolidation in the regional newspaper sector when it had "other opportunities" elsewhere in its media empire. "I think we are different from some of the other newspaper players in having built up very strong other groups in information publishing and exhibitions and things like that."

But industry analysts take a broader view. Lorna Tilbian, director of media research at Numis Securities, says: "The main reason they are selling is that they have put more capital into regional newspapers than any of their other businesses over the last decade and got the lowest return. This game is all about employing your capital where you get the biggest return. The second reason is [DMGT chairman] Lord Rothermere, having inherited a vibrant business, wants to leave the same to his grand-children. The regional newspaper business is a dinosaur with a long tail."

If the Northcliffe sale goes through for £1.5bn, Lord Rothermere's shareholding will ensure he receives some £300m from the offloading of what is the most profitable division of DMGT. But when other shareholders have been paid, and further funds have been directed to paying off DMGT debt and improving the pension fund, only around £300m will be left for investment in other parts of the business.

Last month it emerged that the Daily Mail editor Paul Dacre, an executive board director of DMGT, had not been paid a performance-related bonus last year. The company's annual report produced a chart comparing the fortunes of 13 media companies in 2005 and placed DMGT in an unflattering 10th.

The birth of an Irish edition of the Daily Mail follows the October launch in Dublin of the free sister title Metro and the 2001 acquisition by DMGT of Ireland on Sunday, which is a competitor of the Irish Independent and Sunday Independent, which form part of the same newspaper group as The Independent.

DMGT has already spent upwards of £65m in Ireland and is enduring heavy annual losses. It has also spent some £250m in Australia on a radio business that last year failed to deliver a profit.

Nevertheless, the launch of the Irish edition of the Daily Mail will help to push up circulation, which is down 0.3 per cent year-on-year. Ms Tilbian points out that the Irish adventure may also be a sound longer-term strategy. "This is a booming growth market," she says of Ireland.

Meanwhile, staff at the Northcliffe titles must look forward to life outside the DMGT umbrella, quite possibly under American ownership.

Newsquest was formed in 1996 to effect a management buyout of Reed Regional Newspapers. It took control of the Westminster Press group later that year but was itself acquired by the giant US-based international news group Gannett in 1999.