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Aftermath of Robert Maxwell: Britain's Mirror Group Newspapers is a free-standing entity after a majority of shares is sold to institutional investors.

BRITAIN'S MIRROR GROUP Newspapers Ltd., which was thrown into confusion by the death of Robert Maxwell in 1991, has become a free-standing entity after the majority of its shares was-sold to institutional investors

Maxwell, who looted the MGN pension fund, had used MGN shares as collateral for bank loans. The banks became reluctant owners of 54.8% of MGN, which publishes the Daily Mirror and two Sunday tabloids, People and Sunday Mirror, all in London. In Glasgow, Scotland, the company publishes the Daily Record and Sunday Mail.

An administrator, John Talbot, head of corporate recovery at Arthur Andersen, an accounting firm, was named to dispose of the majority shareholding. He rejected a quick sale and, with the banks' support, sought to maximize the value of the shares.

Talbot helped install new management, which brought in large-scale job cuts. MGN expects that the staff will number 2,850 at the end of 1993, compared to 3,601 in October 1992.

The MGN sale brought in 373 million [pounds] (about $550 million). The offer price was 170 pence (about $2.55) per share, a 4% discount on the prevailing market price.

More than 100 institutions took part. The effect of the sale is that the banks get their loans repaid and unsecured creditors get some of their money back.

"The strength of institutional demand for MGN shares," Talbot said in a statement, "has permitted the sale of the entire holdings in MGN at an attractive price, and we have completed the international offering earlier than anticipated."

The only high-profile institution to emerge with a significant stake in MGN was Mercury Asset Management, the fund management division of Warburg, which increased its holding from about 4% to slightly more than 20%.

One effect of the sale was to reduce speculation about a possible takeover of MGN by a single interest. A rumored candidate was Pearson, which owns the Financial Times, London.

"They got a fairly good price," said Anthony de Larrinaga, a media analyst at London stockbrokers Panmure Gordon, who noted that the price of MGN stock dropped after the sale.

MGN got a boost before the sale in the form of strong pretax profits of 33.8 million [pounds] (about $50 million), before exceptional charges, for the six months ending June 27. This was up more than 120% from the previous year.

But the combined circulation of the Daily Mirror and Daily Record was down by slightly more than 5% in the six months ending in August, compared to the same period in 1992.

De Larrinaga regarded MGN as a sound business with a loyal customer base. But he saw problems within the industry. He noted that the Daily Mirror's circulation, which brings in two-thirds of revenues, is falling 4% to 4.5% a year. And there is a fear that circulation could be eroded further if the government decides to impose a value added tax on newspapers.

Chris Monroe, a publishing industry analyst at Hoare Govett in London, said much of the financial community "would not be surprised to see VAT at 8% on newspapers, books and magazines. It is generally considered that VAT at the full [17.5%] rate would not go straight on. It would be more likely that it is done in steps or that a lower rate was stuck with."

Monroe said the continued fears about VAT and the effects of a price war between the Daily Mirror and Rupert Murdoch's Sun have combined to hold the Daily Mirror's cover price down. The Sun is selling for seven pence (about 10[cts]) less than the Daily Mirror as part of an aggressive campaign to gain market share.

"I think people are nervous about the medium-term impact of the Sun's price cut" she said. "I think the extent of the differential is going to be a long-term concern."

Monroe regarded MGN as a strong company, and she expected the benefits of cost-cutting to be seen during the next couple of years. "They've got a good market position," she said. "They are efficiently managed." She noted that many senior people were formerly with Murdoch's News International Ltd. "They know how to run newspapers.

De Larrinaga said MGN successfully has cut costs, but he doubted if there would be any more gains in this area.

"There seems little reason to be too excited by the earnings profile of the Mirror Group, beyond the current cost-saving program, which is providing most of the earnings at the moment," he said.

He also was concerned that cuts in staffing levels might damage editorial quality and ultimately circulation.

"Anyone can go in and slice costs out of a group," he said. "The art is to slice costs while maintaining quality."

In January, MGN is to begin moving to Canary Wharf in the London Docklands from its headquarters in central London.

The move will take advantage of low office rents in London, particularly the Docklands, caused by overbuilding and the recession. It has been estimated that the move could save about $10 million a year.

MGN chief executive David Montgomery said the move will mean that the company's "costs will be the lowest of our competitors."
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Author:O'Connor, Robert
Publication:Editor & Publisher
Date:Dec 11, 1993
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