Black’s next move

Hollinger’s woeful performance on the stock market has persuaded Conrad Black to strip the group of its lesser assets and bolster the remaining interests with robust enough Net identities to retain the company’s independence. As rival media ow

If content truly is king in the new media age, newspaper baron Conrad Black, chief executive of Daily Telegraph-publisher Hollinger International, is sitting on a goldmine.

Disappointed by the financial market’s treatment of the company’s share price, Black has decided to sell off that part of his empire which lacks Internet potential and seek “electronic associations” for the rest. The cash raised from the sale of assets will be used to reduce debt and buy back shares.

The media mogul is known to be peeved by the market’s perception of Hollinger as a traditional media company and its failure to favourably acknowledge its new media investments. Hollinger’s new media interests include an online version of the Telegraph – The Electronic Telegraph – portal site and stakes in businesses such as travel site, online investment information group Intelligent Investor International, women’s portal and online designer store Bestofbritish.

The extent of the sell-off remains unclear, although some commentators claim Black is prepared to consider bids for The Daily Telegraph – one of the jewels in Hollinger’s crown. Other Hollinger assets include 76 daily newspapers, such as Canada’s newly-launched National Post, The Chicago Sun-Times and The Jerusalem Post, magazines such as The Spectator, and 300-plus community newspapers.

Black’s new strategy, designed to unlock shareholder value, was announced late last Tuesday and is partly inspired by the American Online/Time Warner merger.

The deal has been followed by considerable speculation about other multi-media alliances. Yahoo! is reportedly considering making a bid for EMAP, and Freeserve is believed to have been rebuffed after making an approach to the publisher. Meanwhile, Cinven, the private equity company behind IPC Magazines, is said to be in talks over the sale of the magazine publisher to cable company Telewest.

Black’s announcement prompted a rise last Wednesday in the share price of New York-listed Hollinger by more than 26 per cent.

The newspaper tycoon, who built his media empire by buying community papers, has identified these as assets to be sold. Some metropolitan newspaper assets will also be made “available for merger or affiliation”.

How this will affect The Daily Telegraph remains to be seen.

In a statement issued last Tuesday, Black said: “The company will consider arrangements that will allow it to retain control of the Telegraph in the UK, most of its metropolitan newspaper assets in North America, the Internet assets related to these publications, and the company’s Net investment portfolio and venture capital group.”

“For these assets – in particular the Telegraph and National Post – the company would be prepared to explore electronic associations with other groups in larger combinations that will maximise future franchise values while retaining its control of those assets.”

The announcement was followed by better-than-expected results for the quarter to March 31, showing earnings from continuing operations, excluding non-recurring items, of $15.2m (£9.5m). This compares with $17.1m (£10.7m) in the same period last year.

Investors had been wary of losses at the National Post – the Canadian national daily launched in 1998. But these have now shrunk, and Hollinger expects the title to break even within the year.

New York analyst Steve Barlow, of Credit Suisse First Boston, claims that in an analyst briefing on the results last Friday, Black admitted that if someone made a favourable bid for the Telegraph he would have to look at it. “The question is: do you believe what they say, or do you think that the whole thing is in play?” asks Barlow. “The book doesn’t include London, but that doesn’t mean people won’t talk about it.”

Offers you can refuse

Dan Colson, vice-chairman of Hollinger International, is adamant that “the Telegraph is not for sale. We are not talking about selling the Telegraph.”

Analysts and industry sources claim the Telegraph is worth about £600m, but it is unlikely that Hollinger would consider offers of less than £1bn.

Regulatory controls would prevent the likes of Rupert Murdoch’s News Corporation, owner of Times Newspapers through News International, and most other UK national newspaper groups from buying the Telegraph.

The Daily Telegraph, which had an average net circulation for the six months to March of 1,032,745, outsells The Times by more than 300,000, despite Murdoch’s past price-cutting tactics.

Ian Clark, media director of Booth Lockett Makin, says: “A purchaser would more likely be an investor not currently in the UK newspaper arena – perhaps with a publishing background in Australia or the US.”

Barlow claims Black wants to keep titles with a circulation of more than 100,000, which includes five to six metropolitan titles in Canada, the Chicago Sun-Times and the Telegraph, but puts the future of the Jerusalem Post in doubt.

The justification offered by Hollinger for selling off the other newspapers is that they are not suited to the Net age.

Small isn’t beautiful

Colson says: “We wanted to concentrate more on the electronic side of things, using the newspaper and Net sites we have. Frankly, the small papers don’t sit particularly well in the Net world. Most of them aren’t online and have no Net potential.”

But Barlow was surprised by the extent of the proposed sell-off. “I wasn’t expecting such a broad declaration of defeat with regard to the share price,” he says.

“Black is upset over the share price – he thinks it’s worth a lot more. People have been telling him to pay down debt and buy back a lot of shares. If he does this, the value of his own shares will go up. [It’s a way to get your money out].”

He adds: “It’s basically having to figure out what his final agenda is. I think everything is for sale. If the company gets offers for everything, then it will have to make a decision.

But Colson maintains that the sell-off will only extend to community newspapers. “It’s a significant change in strategy: while remaining committed to newspapers, we have made a conscious decision to concentrate on the larger titles. “This is not turning our backs on the newspaper industry. We believe in newspapers.

“What we are saying is that we would like to concentrate our efforts on developing new platforms for what we do best.”

That could mean deals with telephony, television, cable or Net-based companies.

“We think the recent AOL/Time Warner deal was a terrific, and very obvious, way for two companies to come together,” says Colson. “We are frankly open to all opportunities.”

Different parts of the Hollinger empire have been approached by numerous media and Net companies, but Colson favours teaming up globally with one or two media companies that are not particularly strong on the print side. He says: “We are looking for something bigger and, frankly, global. We have no aversion to the idea of a large-scale joint venture with a major partner, and we would even consider some sort of share swap.”

Yahoo! is an obvious candidate, given the interest it has shown in other media companies such as EMAP. Rumours have also link ed the company with Murdoch’s News Corporation.

But Hollinger’s content is not only the same scale or breadth as Time Warner’s. Barlow says: “AOL bought Time Warner for its cable content, music business and studio interests. It didn’t buy it because it wanted the magazine print-based content.”

Murdoch’s News Corporation, which includes News International, BSkyB, the Fox TV network in the US and film studio Twentieth Century Fox, has a similarly broad portfolio. In an effort not to miss out on the new media gold-rush, it has teamed up with Softbank – one of the world’s biggest dot-com investment companies – to establish venture capital funds for Net start-ups in Europe.

Telewest is no doubt attracted by the potential for masthead programming within IPC’s portfolio of magazines, as well as Net sites such as Unmissable tv.

Newspaper database

Newspaper content appears to be better suited to text-based services available through either wireless application protocols (WAP), third-generation mobile phones or handheld computers. Aside from content, one of the attractions of Hollinger is the database of newspaper readers and buyers which could be used by media partners to extend their subscription base.

Clark says: “New media companies are definitely circling. Given the situation with Nasdaq in the US, you are looking at reverse takeovers, with new media companies using the position they are in at the moment to leverage more traditional vehicles and make their shares more stable.”

Steve Goodman, press director at Mediacom TMB, believes there will be many more mergers between traditional media companies and Net-based companies. He says: “I don’t think this will be a bad thing. It will essentially mean that people will come to talk to us about our clients. Hopefully, we’ll be able to talk about a rounded package rather than just one form of media.”

There are a number of possible reasons for Hollinger’s asset sale, including the need to bolster its share price, offset the National Post’s start-up costs and a belief that the community newspapers do not have sufficient potential for the Net age.

Whatever the underlying reason, standalone newspaper companies appear an anachronism when it comes to media globalisation.

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