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February 11, 2016

Broker ‘confused’ by Johnston Press bid to buy i – and ‘initial thoughts’ are for investors to reject move

By William Turvill

A broking company has said its "initial thoughts" on a Johnston Press takeover of the i newspaper are that investors should reject the deal.

Peel Hunt warned that it is "confused" after JP announced it was close to completing a deal to buy the i from ESI Media for around £24m.

The note also suggested the i's sister titles, The Independent and Independent on Sunday, were also "informally on the block" for sale.

A note from the broker this morning was headlined: "Potential 'i' deal. More print, and bad for JPR [Johnston Press] bond holders".

The note said: "Life at Johnston Press is never dull. Having just announced ‘a reduction of pension deficit’, JPR is now in advanced talks to acquire the i for c£24m…

"We cannot imagine bond holders or pension trustees will be happy.

"JPR had cash at hand of c£41m at H1, but gross debt of c£225m, and operating trends have been deteriorating sharply since then.

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"We are in favour of print industry consolidation… However, we are confused by JPR’s business strategy as a regional publisher, which has focussed on paring back print, in favour of digital.

"The i is an innovative product, but it is wholly print and national. Nationals is a very competitive space, with TNI [Trinity Mirror] amongst others rumoured to be in launch mode. Shareholder approval of this deal will be needed."

Peel Hunt said it was "aware that the i (and the Independent assets) were informally on the block, but we admit to being a little bit 'blindsided' by this outcome."

Johnston Press revealed this morning that the potential deal would be worth £24m and that the i recorded an unaudited "carve-out" operating profit of £5.2m in the year to September 2015.

Peel Hunt said this "multiple [operating profit versus sale price] is low-ish, and not supportive of JPR’s own valuation".

It added: "We cannot see any £m synergies identified. It is not clear what headcount comes across with this business, at a time when JPR is culling its own staff."

Peel Hunt said that "notionally" the deal would add 10 per cent to Johnston Press's EBITA (earnings before interest, tax and amortisation) but noted the company is also looking to sell some of its regional assets currently.

Under 'strategy', it said:  "JPR justifies the ‘i deal’ on the back of : 1. Print reach enlarged; 2. increased share of national advertising; 3. ‘Growing revenues’; 4. Accelerated digital transformation’.

"Superficially, this looks promising. However, nationals is a very different space to regionals, and the likes of Trinity are pursuing an organic approach to ‘low-price’ nationals."

Peel Hunt concluded that "our initial thoughts are that it should be rejected by stakeholders, on the basis of opportunity cost".

Picture: Johnston Press chief executive Ashley Highfield

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