Trinity Mirror To Expand UK Tabloid Empire
Now for the deck chair shuffling in the UK daily newspapers. Trinity Mirror is looking to buy Express Newspapers owners, Northern and Shell from Richard Desmond for a reported £100 million ($A163 million) Given that the News York Daily News is being sold by Mort Zuckerman for $US1, Desmond’s price is astonishing, even if he has slashed costs and held down journalists pay to the point where Express papers made a small reported profit in 2015.
If he gets anywhere near £100 million it would be a ‘mere’ 20% discount on the £125 million he paid back in 2000 when the share prices of his listed competitors (and putative buyer) have halved or worse. In effect if the deal happens it will be a case of the weak buying the infirm.
The July audit circulation figures tell the story - The Express saw its sales fall 9.9% to around 380,000 in the 12 months, and its stablemate, the Daily Star saw an 18% slump. The Mirror (Trinity’s main title) reported a drop of 19%. The Sunday Express saw a slide of 11.5% and the Sunday Mirror lost more than 21% of its sales. In short the takeover talks make no sense. All papers are bleeding readers and will continue to do so.
But there is only one reason why Trinity Mirror wants to continue to grow in print - it has to. The answer is in two numbers - Trinity Mirror has a stockmarket value of £233.5 million ($A380 million). It has an unfunded pension liability (because its staff pension fund is a defined benefits model, as opposed to Australia’s defined contribution/accumulation model) of £407 million or $A663 million.
Trinity Mirror doesn’t make enough money to meet that liability as well as continuing to pay dividends to shareholders, it needs more revenue and hopefully cash flow and has been looking to do just that.
In 2015 it purchased the Local World group of UK local and regional papers for £220 million (around $A360 million) or almost what the whole company is currently valued at. If it buys Northern and Shell, Desmond’s main company, Trinity will be buying another set of dying assets. Since it bought Local World in October 2015, Trinity’s share price has halved to around 86p, or by roughly £230 million.
That’s more than what it paid for Local World. Investors reckon the purchased assets no longer has any value. In the six months to the start of July, Trinity said revenues fell 21%, ad revenues plunged 18% and profits dropped nearly 10%.
Northern and Shell contains more than the Express papers. There’s OK and other magazine titles, plus the dying Star newspaper. But Trinity Mirror has to get revenues, hopefully earnings, and cash flow to convince analysts and investors that it will remain in business to meet the huge pension bill, which grows by the year (and will get bigger if it buys Northern and Shell).
Buying the Express newspapers and other assets though will see more of the same, falling revenues, falling ads and profits and fewer newspapers sold. The UK Press Gazette says 18 UK local and regional papers have closed since June - five of those were closed by Trinity Mirror, with a number of others restructured but still open.
Last week’s announced sale of The New York Daily News came with pension liabilities of more than $US30 million which owner Mort Zurckerman wanted to be rid of. Tronc (the LA Times, Chicago Tribune) the owner has pension deficits of its own but like Trinity Mirror believes the only way to get the convince the market its viable, is to take on more liabilities and cheapening newspaper assets.
And finally the purchase, if it happens, will reduce media diversity in the UK, just as Rupert Murdoch’s bid for the rest of Sky, will reduce diversity. If that is referred to the UK competition regulator, as it could very well be, then any deal from Trinity could be subjected to the same process.
During Desmond’s ownership, the Express has been eclipsed by the Daily Mail, with circulation falling from more than 1 million at the time of Mr Desmond’s takeover in 2000, to just below 400,000 today. (In other words he is an incompetent newspaper owner).
If Trinity buys Northern and Shell, the combined readership of the Express and Mirror titles will be around 29% of the UK daily newspaper market, about what the Daily Mail and its Sunday sister (23% and 22% respectively), with News UK holding most of the rest.
But one thing you can’t say about Richard Desmond is that he has the best understanding of current media values and direction of any proprietor. In May 2014, he sold the UK broadcaster Channel 5 to Viacom for £460 million (around $A750 million at current exchange rates.
Last April, he cut his remaining ties to the pornography industry, selling his adult entertainment channels, including Television X and Viewers’ Wives, in a management buyout for less than £1 million ($A1.63 million).
The sale of Channel 5 was just before UK TV viewing and revenues started tanking (like they are in Europe, Australia, NZ, the US, Canada etc). And the sale of his porn channels was recognition that in these days of free internet porn, “adult entertainment channels' have little or no long term value.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.