Telegraph Media Group (TMG) suffered a heavy defeat yesterday, along with the UK’s ruling Conservative government it had so solidly supported, not least with apocalyptic headlines (see below). The Labour Party’s landslide majority in the country’s parliament might soon be followed by another defeat for the Telegraph’s UAE-backed temporary owners.
The deadline for bids in the re-run auction for TMG is 19 July, and it is possible that the Abu Dhabi-controlled RedBird IMI will not be able to recoup the £600m+ it had paid for the 169-year-old daily news brand.
The process has been complicated by legislation, rushed through by the outgoing government, to prevent TMG’s ownership by a foreign government and also to exclude foreign funding for almost any other news brand deal. The government action to restrict foreign investment in news to a greater degree than, say, for sensitive infrastructure like nuclear power was an unintended consequence of the successful campaign against RedBird’s acquisition of the Telegraph.
Some level of foreign funding might, ultimately, be approved by the new government. But that may not be in time to stimulate the Telegraph auction. The negative vibes are amplified by the fact that almost any successful bid for the Telegraph will be subject to approval by the very government that the news brand (and some of the bidders) campaigned so vigorously against during the election campaign.
But there’s more.
Successive would-be bidders, which have spent recent weeks crawling all over the 2023 numbers, have realised that:
- Despite TMG’s growth in digital subs and advertising, some 60% of revenue in 2023 was from print. The publisher is more print-centric than many of its peers, a fact virtually obscured by stats showing that 49% of subscriptions are digital – although 65% of all readership revenue (subs and casual copy sales) is generated by the printed newspaper
- TMG last year had acquired Chelsea Magazines for £13mn (15x EBITDA last year). That was very high price for a print publisher with a mere 8% EBITDA margin and (in 2023) declining revenues. We can only wonder about the strategy but the acquisition seems to have been responsible for: much of the £14mn ( 6%) revenue growth reported by TMG in 2023; padding the TMG claim of having achieved its targeted 1mn subscriptions; and (maybe) justifying payment of all or part of a £1mn performance bonus to the outgoing CEO
- An apparent 28% EBITDA increase may have pushed margins to an unsustainable 22%
- The majority of TMG’s £27mn revenue attributed to “eCommerce and licensing” is believed to be due to the “licensing” payments by Meta and Google which are not expected to be renewed when the contracts expire this year or next. Without those high-profit, short-term payments, TMG revenue and profit would have been sharply reduced.
The TMG accounts (excluding the acquired Chelsea Magazines) tell the story:
| Telegraph Media Group (ex Chelsea Magazines) SnapShot £mn | 2023 | 2022 | 2021 | 2020 |
| Revenue | 260 | 254 | 245 | 235 |
| Copy sales | 57 | 56 | 60 | 65 |
| Subs (%print) | 138 (51%) | 130 (55%) | 112 (62%) | 98 (68%) |
| Ads (% print) | 47 (65%) | 45 (73%) | 52 (79%) | 58 (74%) |
| Licensing etc | 27 | 23 | 21 | 14 |
| EBITDA | 60 | 47 | 40 | 39 |
| Margin | 22% | 19% | 16% | 17% |
| Headcount | 1,063 | 969 | 1,047 | 1,148 |
| Total subscriptions | 759k | 734k | 720k | 562k |
While we have previously been among those who have suggested that the TMG auction could recoup the £600mn+ paid for it, the latest numbers and also UK political activity may have changed things substantially.
There may not now be many bidders.
Even before the recent legislative restrictions, reports that European news publishers like Axel Springer and Mediahuis would be bidding for TMG had always seemed unconvincing and now can’t happen. Some surprises may be possible but most private equity firms also seem unlikely suitors. It leaves the field seemingly to Paul Marshall (majority shareholder of GB TV News and hedge fund owner) – who is said to have helped craft the legislation that cut foreign investment from the equation – and Lord Rothermere (owner of DMGT, the Daily Mail Group).
Both bidders will excite some negative interest among the new UK government because: Marshall was a longtime donor to the outgoing Conservatives and Rothermere’s Daily Mail – alongside the Telegraph itself – has been their most consistent supporter. National World, the listed regional news group headed by newspaper veteran David Montgomery, may also be a bidder. But its £50mn market cap might confine it to an ancillary role, helping one of the frontrunners to do the deal.
Both Marshall and Rothermere may be subject to lengthy regulatory review because of DMGT’s existing market share among national daily newspapers, and also allegations of unlawful bias against Marshall’s GB News.
While the scenario makes the TMG sellers hungry for any bidder at all with no such exposure, the Daily Mail – for all its polarising politics – has a longterm track record as a substantial, steady and fair-minded employer of journalists. It also has the ability – in divesting, say, its Metro free daily and i tabloid – actually to reduce its existing audience footprint. The aforesaid Montgomery might enthusiastically seek to acquire the discarded dailies.
Even though, Rothermere and others would make the case for why legacy news brands are but a small part of the total audience during times when most young people depend on social media, it is easy to believe that DMGT will be a better guarantor of the longterm future of the Telegraph (in print and, crucially, online) than almost anyone else. The Telegraph would perfectly complement the Daily Mail itself and would enable the combined group to safeguard the future by applying TMG’s subscriptions marketing to its existing business, especially its world-beating Mail Online.
But DMGT could go further to secure the acquisition it most wants.
Regulators are seldom interested in longterm development plans as much as near-term control and competition issues. But – when it comes to opining on the future of the UK’s historic Daily Telegraph – they might be persuaded by expansive DMGT plans to build new digital, audio, video and newsletter channels for audiences young and old.
If the new UK government is concerned about the future of a legacy news brand and an industry of which it is a cornerstone, why won’t they be impressed by well-crafted, investment-savvy and persuasive plans to develop it, in the UK and internationally?
There’s room for a lot of creativity in the proposal because it might not be like any other auction.
The latest TMG numbers may not only depress its valuation but also reveal its vulnerability as a business. DMGT guarantees of security and also of editorial oversight (by journalists themselves) might be surprisingly easy for Labour ministers to support, in preference to hedge fund owner Paul Marshall who has so openly funded their opponents and admired the right-wing stridency of Fox News in the US.
Some Labour Party activists might still see Lord Rothermere as the devil. But he’s the devil they know.
In the expected absence of a completely “clean” bidder without any competitive issues (and perhaps no track record either), RedBird IMI will need to take account of much more than merely the bid price. It will want to feel assured that, having accepted an offer, the acquisition would be approved by the UK government.
It is possible that a debt-free Telegraph Media Group will attract bids of not much more than £400-500mn – well short of what RedBird IMI has paid. But bidders may now consider that TMG is making about £45-50mn of sustainable profit, so 10x EBITDA or 2x revenue might be a “fair” price, even for a trophy asset. Perhaps, some future-performance, deferred payments would soften the blow (that type of foreign funding would be ok, of course). DMGT might be very creative in its funding and payments schedule in order to win the auction – and government approval.
As DMGT’s Lord Rothermere this morning ponders the hapless political campaign that consigned many of his political friends to electoral defeat, he might just be turning his mind to persuading the new government how he will help to safeguard the longterm future of the UK news and media industries. As his family have been doing for more than a century.
