The long, painful drama over the future of the Telegraph appears to have reached its final act with news that Mail publisher DMGT has signed an agreement to buy the business (scroll down for full announcement).
Here’s three thoughts from me about what is going on and what might happen next.
The £500m purchase price will create pressure on costs
The Telegraph’s own reporting valued the business at £300m to £350m and that had appeared to be the maximum buyers on the open market were willing to pay.
The DMGT press release does not say that it is paying £500m, only that that the business is valued at £500m. So DMGT could could be handing over less and taking on a long-term debt with Redbird IMI to enable the Abu Dhabi government to recoup its investment some time in the future. The Telegraph called this the “poison pill” clause.
DMGT said there will be “no foreign state capital of investment in the funding structure”. But foreign debt would not fall foul of this clause because creditors only get involved in the running of a business if the terms of the loan are not met.
DMGT has yet to reveal where the money is coming from, but wherever it is – paying over the odds means there will be £150m less to invest in the title’s future over the long term.
As the existing publisher of the Mail titles, Metro, The i Paper and New Scientist – DMGT will look to make big savings at the Telegraph through synergies and shared infrastructure.
As a more than century-old family-owned business, DMGT is likely taking a longer term view of the Telegraph deal than almost any other buyer would. So Lord Rothermere may see £500m as payment for an asset that could deliver profit to the family for another 100 years as money well spent.
Looking at the Telegraph’s recent history, £500m is roughly 12 years of operating profit.
The challenge, of course, is the fact that the print edition makes up more than half of Telegraph Media Group’s revenue £279m annual revenue. Assuming a 10% year on year decline in the current estimated daily sale of 150,000, this will fall to 50,000 by 2035.
Editor Chris Evans has won the game of thrones
As Hilary Mantel wrote in Wolf Hall – her epic account of power struggles in Tudor England – you have to pick your prince. And it appears that Telegraph editor Chris Evans has picked the right one in Lord Rothermere.
Evans has led a rearguard action against the bid by Redbird Capital Partners to buy the Telegraph, repeatedly citing concerns about the company’s links with China in his own editorial pages. The Telegraph editorial team also expressed alarm over the United Arab Emirates keeping a 15% stake in the title as part of the deal.
DMGT owner Lord Rothermere gave Evans a personal vote of endorsement in his Saturday morning announcement: “Chris Evans is an excellent editor, and we intend to give him the resources to invest in the newsroom. Under our ownership, the Daily Telegraph will become a global brand, just as the Daily Mail has.”
I suspect executives who were more openly amenable to the Redbird bid will be among the first to leave the newly-merged business. It will be interesting to see what happens to former Financial Times journalist Matt Garrahan who was recruited by Redbird as an “operating partner” last month and was tipped to join the Telegraph as either publisher or editor once the deal was completed.
The UK government should wave this deal through
The Department of Culture Media and Sport and the Competition and Markets Authority will take a close look at a deal which enables DMGT to dominate the UK national newspaper market with more than 50% of circulation.
But given the fact newspapers are a far smaller part of the media than they were (even though the have outsize influence on the national debate) it appears unlikely that the deal will be blocked.
The Telegraph and Daily Mail are already fairly close ideologically so little will change on that score after the merger. In business terms, it might make sense to take the Telegraph a little further upmarket to create more brand distinction between the two.
DMGT’s other titles, The i Paper and Metro, are both politically neutral and will stay that way.
According to Ofcom, the internet is the main source of news for 71% of people in the UK.
And in terms of online publishers DMGT plus Telegraph Media Group is a relative minnow. The merged publishers would account for just over two billion online audience minutes per month per Ipsos iris data for the UK.
Mergers of this kind are going to have to be allowed if UK companies have any chance of competing with the foreign-owned tech platforms which dominate UK media.
DMGT’s £500m bid for Telegraph Media Group – announcement in full
DMGT has signed an agreement with Redbird IMI over the acquisition of the Telegraph Media Group at a valuation of £500 million.
The parties have entered a period of exclusivity to finalise the terms of the transaction, and to prepare the necessary regulatory submissions, which they expect to happen quickly.
DMGT believes that the proposed acquisition would give much-needed certainty and confidence to TMG’s employees, and ensure that the Daily Telegraph’s exceptional journalism can flourish long into the future and on the world stage.
The Daily Telegraph would join DMGT’s stable of independent and diverse media brands, including the Daily Mail and The Mail on Sunday, Metro, The i Paper, and New Scientist. TMG would benefit from DMGT’s significant resources and experience in transforming media brands in a digital world, and growing British brands into global news operations.
For more than 100 years, DMGT has prided itself on being a responsible custodian of media assets, which it holds for the long term. The company plans to invest substantially in TMG with the aim of accelerating its international expansion. It will focus particularly on the USA, where the Daily Mail is already successful, with established editorial and commercial operations.
DMGT places great emphasis on the editorial independence of its titles, and The Daily Telegraph would remain editorially independent from other titles in the group.
The transaction would comply with the UK’s Foreign State Influence regime as there will be no foreign state investment or capital in the funding structure.
DMGT is confident any regulatory processes can be concluded swiftly and positively, as the case for approving the acquisition is compelling.
Today’s media landscape is unrecognisable from a decade ago. News publishers have to compete against both vast global online platforms and myriad digital and social media news sources, some of them highly unreliable.
The role of trusted news media has never been more important, and requires news publishers with scale and experience to compete.
Lord Rothermere, Chairman, DMGT, said: “I have long admired the Daily Telegraph. My family and I have an enduring love of newspapers and for the journalists who make them. The Daily Telegraph is Britain’s largest and best quality broadsheet newspaper, and I have grown up respecting it. It has a remarkable history and has played a vital role in shaping Britain’s national debate over many decades.
“Chris Evans is an excellent editor, and we intend to give him the resources to invest in the newsroom. Under our ownership, the Daily Telegraph will become a global brand, just as the Daily Mail has.”
A spokesman for RedBird IMI said: “DMGT and RedBird IMI have worked swiftly to reach the agreement announced today, which will shortly be submitted to the Secretary of State.”
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