Peter Kirwan: Will Sly Bailey be forced to turn to Plan B?

The best that can be said is that Trinity Mirror got a half-decent price for the Racing Post.

The punter’s bible sold for well below the £200m originally expected. In the end, the Post went for 11.2 times its 2006 operating profits – only slightly better than the market’s valuation of Trinity Mirror as a whole.

The implication is that the Post’s new owner got itself a bargain.

The Post and associated publications generated juicy operating margins of 35 per cent during the first half of 2007. That’s almost double the 21 per cent turned in by Trinity Mirror itself.

No doubt the spectre of Northern Wreck and Gordon Brown’s impending gambling crackdown took its toll on the asking price.

Bidders will also have asked how long the Post can continue to generate two-thirds of its turnover from reader revenues.

The majority of racing fans aren’t yet downloading vital news via mobile handsets.

That day will come. But the Post’s new owner will almost certainly recoup its investment first.

To keep its margins steady, Trinity Mirror will now need its remaining divisions to generate £6m-£7m of additional operating profit every year.

The cash received from this deal won’t help. Lacking good ideas about how to invest it, Trinity Mirror plans to hand it straight back to shareholders. First, though, it will subtract a whopping £50m to plug holes in its workers’ pension plans.

Trinity’s failure to secure only a half-decent price for its remaining regional newspapers in London and the South East must be galling.

But when you’re confronted by last-minute chiselling on price, as Trinity was, there’s no shame in pulling out of a deal.

So it’s worth taking with a pinch of salt the cries of ‘cock-up’that have appeared in the City pages. In fact, they’re a signal of deeper dissatisfaction among investors.

For the past year, chief executive Sly Bailey has used the protracted review of Trinity Mirror’s operations as a shield against her critics.

Now the pressure is on. If economic conditions deteriorate, Trinity Mirror could be hit by a suppressed wave of discontent among investors who want to sell the company’s shares at a tolerable price.

They have been biding their time ever since Bailey spurned the idea of an audacious break-up as a way of reviving the company’s share price.

Instead, she chose to focus on creating the conditions for organic growth in profits.

Bailey’s Plan A involved cutting costs so that Trinity Mirror could capitalize on a print-based advertising upturn.

Yet, thanks to turmoil on the financial markets, that recovery has probably been delayed. In the meantime, digital revenues remain too small to take up the slack.

Paradoxically, however, cost-cutting has scared away potential bidders. They question how much further costs can be cut. And they worry that demand for print advertising is in long-term decline. As a result, Trinity Mirror’s share price remains depressed.

Next February, Sly Bailey will begin her sixth year as chief executive of Trinity Mirror.

No-one will blame her if an economic downturn derails

Plan A.

But under those circumstances, the clamour for some kind of break-up – the Plan B she rejected last year – could grow hard to resist.

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