Johnston Press stops papering over the cracks
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
– 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