John­ston Press stops pa­per­ing over the cracks

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shifts fewer than 14,000 copies in a city of more than half a mil­lion. Across the Pen­nines, in 2006 the

owned then by the pub­lisher of was sell­ing more than 128,000. To­day un­der the Reach um­brella its cir­cu­la­tion is shy of 37,000.

How­ever, un­like Reach, or Newsquest, or Ar­chant, or any of the other re­gional pub­lish­ers that it hopes will ride to its res­cue in the sale process launched yes­ter­day, John­ston Press has a se­ri­ous and ur­gent prob­lem with debt.

For 200 years it was a small, fam­ily-owned prin­ter-pub­lisher based in Falkirk. In the Six­ties un­der Fred John­ston, the great-great-great grand­son of the founder, its hori­zons were broad­ened and John­ston Press started ex­pand­ing via ac­qui­si­tions.

In 1988, it sought ac­cess to cap­i­tal to fund more takeovers and floated on the stock ex­change. By the mid-Nineties, lo­cal news­pa­per con­sol­i­da­tion was in full swing, and John­ston

Press ap­pointed Tim Bowdler, an en­gi­neer who did not hide his dis­dain for the per­ceived in­ef­fi­cien­cies of the news­pa­per in­dus­try, to lead a deal­mak­ing spree. He joked that he had been ap­pointed be­cause Fred John­ston was “look­ing for some­one who knew noth­ing about news­pa­pers and they couldn’t find any­one else who knew less than me”.

Bowdler loaded up on ex­pen­sive debt through the boom years be­fore the fi­nan­cial cri­sis, even as it be­came clear that the web and Google rep­re­sented an ex­is­ten­tial threat to the lo­cal ad­ver­tis­ing mo­nop­o­lies on which lo­cal news­pa­pers re­lied.

On his de­par­ture in 2009, for­mer chair­man Roger Parry ad­mit­ted: “Depend­able per­for­mance left us com­fort­able with tak­ing on a high level of debt. We should have spent more time on strat­egy and less on tac­tics, and seen that the past is not a good guide to the fu­ture.”

When Bowdler bought for £160m in 2006, John­ston Press’s debt peaked at £783m, at an av­er­age in­ter­est rate of 5.8pc. With hind­sight his com­ments from that pe­riod ap­pear com­pla­cent about the im­pact of the in­ter­net rev­o­lu­tion, as do the as­sess­ments of City in­vestors who backed John­ston Press to a stock mar­ket val­u­a­tion of £1.4bn.

Bowdler said in 2006 that an­a­lysts “ac­cept the broad view we have, which is that we play a vi­tal role in lo­cal mar­kets. We have a tremen­dously strong po­si­tion now and we have the abil­ity in this chang­ing world to adapt to con­tinue to hold that po­si­tion”. That year he was awarded a CBE for ser­vices to the news­pa­per in­dus­try.

David King, the pub­lish­ing vet­eran now at­tempt­ing to pick up the pieces as John­ston Press chief ex­ec­u­tive, is un­der no such il­lu­sions. Pre­vi­ously John­ston Press’s chief fi­nan­cial of­fi­cer for five years, in May he took over the top job from Ash­ley High­field, who de­clined to nav­i­gate these chop­pi­est of wa­ters and jumped ship for a berth on board a lux­ury yacht com­pany.

King knows that the debt bur­den has made adap­ta­tion to new read­ing habits uniquely chal­leng­ing for John­ston Press, even among lo­cal news­pa­per pub­lish­ers. Most of its web­sites pro­vide not only thin news cov­er­age but also of­fer a frus­trat­ing reader ex­pe­ri­ence stuffed with in­tru­sive ad­ver­tis­ing. The pub­lisher has been forced to squeeze re­turns in the short term to main­tain, rather than in­vest, in prod­ucts ca­pa­ble of form­ing dig­i­tal read­ing habits.

Now its re­main­ing £220m bond debt is due in less than nine months and John­ston Press has no chance of re­pay­ing it or re­fi­nanc­ing it alone. The de­ci­sion to so­licit takeover bids over the next six weeks is an at­tempt by King to take what ini­tia­tive he can, while ad­mit­ting that the com­pany could and prob­a­bly should have acted sooner. Re­struc­tur­ing dis­cus­sions have dragged on for 18 months.

The Gov­ern­ment’s Cairn­cross Re­view of the fund­ing of qual­ity jour­nal­ism is look­ing at how to re­bal­ance the eco­nom­ics of dig­i­tal news so that its pro­duc­ers get a greater share of the value it cre­ates. How­ever, any changes to se­cure a con­tri­bu­tion to news­room fund­ing from Google and Face­book, or loosen their grip on the dig­i­tal ad­ver­tis­ing mar­ket, will not come soon enough for John­ston Press.

So King is ask­ing po­ten­tial bid­ders from the in­dus­try to see the strate­gic value in John­ston Press for a less fi­nan­cially stretched owner seek­ing scale and more con­sol­i­da­tion.

They have not yet. It is a pub­lic com­pany and there­fore al­ways for sale. Yet John­ston Press has some valu­able as­sets and King says open­ing the books in a for­mal process “is about wak­ing peo­ple up”.

The na­tional news­pa­per, for in­stance, pur­chased two and a half years ago for £24m, has been a great suc­cess. John­ston Press com­fort­ably out­bid Reach in that auc­tion, prompt­ing sug­ges­tions it had over­paid, but it has sharply in­creased re­turns while in­vest­ing in the news­room.

Those re­turns have been cru­cial in pay­ing the bills as the de­cline of lo­cal ti­tles has ac­cel­er­ated. Re­gard­less, some of the big­ger John­ston Press brands

iand

– could also at­tract in­ter­est. It owns three print­ing plants too.

The sum of the parts is not worth £220m, how­ever. Even though the en­tire eq­uity in the com­pany is val­ued at lit­tle over £3m, a pub­lisher buyer would need a com­pelling plan to take on the debt bur­den and still make the deal worth­while. Roth­schild is cast­ing its net far and wide, in­clud­ing out­side the UK, but the in­ten­tions of the lead­ing bond­holder, Gold­enTree, may be de­ci­sive in the process.

It owns a ma­jor news­pa­per pub­lisher in Canada and in the UK a chunk of Hibu, the res­ur­rected lo­cal di­rec­tory busi­ness be­hind Yell.com. If it has its own plans for John­ston Press, it could craft a takeover bid in­volv­ing a debt-for-eq­uity swap that a pub­lisher buyer might find hard to beat.

Who­ever ends up con­trol­ling John­ston Press will face tough times for the fore­see­able fu­ture, al­though its staff will be glad of a de­gree of sta­bil­ity.

It is some­times still said by news­room old-stagers that all real sto­ries can be boiled down to one of two op­tions. Either “we name the guilty men” or “ar­row points to de­fec­tive part”. Per­haps it is a sign of a more com­pli­cated world that the story of John­ston Press of­fers plenty of room for both an­gles.

The i na­tional news­pa­per: a John­ston Press suc­cess story, with sharply in­creased re­turns and news­room in­vest­ment since the com­pany bought the ti­tle two years ago

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