Lord Rothermere has won his battle to remove the family business from the glare of public markets after 90 years. The slimmed-down portfolio he is about to take private marks a return for the publisher of the Daily Mail to its newspaper roots, but it also raises the prospect of whether, in a quest for scale, a future tie-up with the Telegraph could be on the cards.
For much of this century Daily Mail & General Trust, which includes Metro and i alongside the Mail titles, embarked on a highly successful strategy to diversify away from a dependence on its publishing operation as the shift to digital began to hit the newspaper industry.
In 2009, Peter Williams, then DMGT’s finance director, was dismissive of the sale of the loss-making Evening Standard, saying: “We are so much more than a newspaper company … to be honest we don’t see this as a hugely significant event.” This was true as recently as last year, when DMGT’s £1.2bn in revenues were evenly split between its consumer media operation and business-to-business portfolio.
However, assuming that Rothermere can muster the shareholder support to carry out his plan, the new, slimmer DMGT will have revenues of £781m, with publishing reasserting its dominance to account for about three-quarters of income, at a market value including debt of £850m.
Since his arrival as chief executive in 2016, Paul Zwillenberg, a partner at Boston Consulting Group with a longstanding and close relationship with Rothermere, has generated more than £3.6bn disposing of stakes and businesses including Zoopla, education firm Hobsons, energy data operation Genscape and, most recently, insurance risk business RMS and the listing of Cazoo.
“DMGT is at an inflection point,” the company’s board told investors, most of whom it acknowledged would not want to stay on board a low-growth, media-focused operation. “Significant acquisitions of media businesses would change the profile of the group and might be inconsistent with the investment objectives of a significant proportion of DMGT shareholders.”
However, Rothermere is facing opposition to his plan: two top 10 shareholders – Majedie Asset Management and JO Hambro Capital Management, which combines control or advise on shares accounting for 10.2% of DMGT – argue that the buyout offer woefully undervalues the assets. Rothermere is seeking backing from 90% of shareholders to push the deal through. However, he also has the option of changing the terms so that just 50% approval is needed to delist, with those unwilling to sell offered shares in the private company.
The market is still challenging for publishers. A DMGT business outlook shared with investors revealed that newsprint supplier contract costs have hit levels not seen since 1996 and as a result job cuts loom at its 2,400-strong publishing operation.
“These have started to affect the profitability of the newspaper businesses in recent months,” the company said. “DMGT is currently exploring a number of options to mitigate the impact of these cost increases, including a review of employee numbers.”
The jewel in the portfolio remains the Mail brands – the Daily Mail, Mail on Sunday and MailOnline – and Rothermere has been busy with a radical restructure of its management.
MailOnline’s revenue has grown to about half that of the Daily Mail and Mail on Sunday, whose revenues shrank 2% to £348m. Photograph: Leon Neal/Getty
While the print edition of the Daily Mail last year supplanted the Sun as the UK’s bestselling newspaper, a title Rupert Murdoch’s tabloid had held since 1978, Rothermere is focusing on a digital future.
Last Monday, Richard Caccappolo, a US media executive based in New York who has worked with the MailOnline editor, Martin Clarke, to build it into one of the world’s biggest news sites, was promoted to run the newspaper and publishing operation.
Days later Geordie Greig, who has edited the Daily Mail for three years since Dacre stood down, was abruptly ousted in a sidelining indicative that those based on the digital side of DMGT’s media divide are in the ascendancy. Greig has been replaced by Ted Verity, editor of the Mail on Sunday, who will oversee both titles, paving the way for a cost-cutting merger or combination of resources.
And finally, last month, Paul Dacre stepped down as chair and editor-in-chief, ending 42 years with the business.
The pandemic has battered the sales and advertising income derived from print newspapers, and hastened the longer-term shift to digital consumption, and MailOnline’s revenue scale within Rothermere’s media portfolio has grown.
MailOnline and DailyMailTV, the TV show launched in 2017 to help to drive awareness of the web operation in the US, made £170m in revenues in the year to the end of September. MailOnline is now about half the size of the Daily Mail and Mail on Sunday, whose revenues shrank 2% to £348m. In pre-pandemic 2019, MailOnline was a third the scale of its print stablemates.
On the advertising front the trajectory is clear. MailOnline advertising revenues grew at an underlying 16%, while the Mail titles’ print advertising revenues climbed just 1%; digital advertising now accounts for 67% of total advertising across the combined Mail businesses. Across the entire consumer media portfolio, digital revenues rose 15%, and account for 32% of all revenues, up from 28% in 2020.
Rothermere has focused on targeted acquisitions to continue to build the scale necessary to continue to compete, having bought New Scientist magazine in a £70m deal in March, as well as the i newspaper in a £49.6m deal two years ago.
Sources say that DMGT sketched out a scenario to take a minority stake in the Telegraph, which has refocused on digital in recent years and has more than 600,000 print and digital subscribers, as part of a takeover by a consortium, when its co-proprietor, Sir Frederick Barclay, floated the possibility of a sale two years ago.
“If DMGT attempted to buy the Telegraph it would definitely trigger competition and media plurality investigations, but that wouldn’t necessarily mean it would be blocked,” says Alice Pickthall, senior analyst at Enders Analysis. “With the long-term structural decline of the newspaper market, whether a deal should be blocked is not as clearcut as it used to be.”
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Combining the Mail and the Telegraph would give Rothermere a 36% share of the national newspaper market, putting the business on a par with News UK, which owns the Sun and Times, as the two biggest players.
However, for now, DMGT is not expected to announce a transformational deal in the near term. The company last week told investors that it sees only “some small-scale opportunities in media-related businesses”.
Suitors who expressed an interest in the Telegraph never saw talks progress. But as the focus of Rothermere’s DMGT narrows to media, and scale becomes ever more important, such a combination could benefit both sides.
“I can’t see them looking to buy the Telegraph in the short term,” says Pickthall. “But strategically, in the medium term, given the market, I could see it happening.”
