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At This Price, The U.K.'s Telegraph Is More Than a Vanity Play

Alex Webb

(Bloomberg Opinion) -- If the owners of Britain’s Daily Telegraph are serious about wanting to sell the publication for a price similar to what they paid for it 15 years ago then they’ll need to make a very convincing argument that it’s a perfect megaphone to influence British politics, especially at this crucial time in the country’s history. No serious media investor is going to front that sort of cash.

Gambling that a deep-pocketed billionaire somewhere wants to exert outsized influence on the negotiations to exit the European Union looks like the best hope for the Barclay brothers to recoup the purchase price of 665 million pounds ($854 million), as the Financial Times has reported is their goal.

The Barclays bought the newspaper when the market was in much better shape. In the middle of the last decade, Britain's 10 daily national newspapers sold a cumulative 11.2 million copies and attracted about a quarter of advertising spending, according to Department for Media, Culture and Sport figures from 2007. By 2017, circulation had fallen to 6.1 million copies, and just 6% of advertising went to the print editions of newspapers, as Google and Facebook Inc. gobbled up ad dollars and readership shifted online.

It’s hard to see how a strategic buyer such as Daily Mail and General Trust Plc, which has said it’s on the prowl, could justify paying such an exorbitant fee for a business in structural decline. There are good reasons why bringing the Daily Mail and Telegraph under one roof might make sense – both are right-of-center and some operational costs could be shared. But Paul Zwillenberg, the chief executive officer of the Daily Mail and General Trust,  has been adamant that he won’t overpay for media assets.

Even with adjustments for one-time items, operating profit at the Telegraph Media Group Ltd., parent of both the daily newspaper and its Sunday stablemate, fell to 7.8 million pounds last year. Back in 2004, the year in which David and Frederick Barclay bought it, the company enjoyed 32 million pounds of operating profit.

Daily Mail and General Trust commands an enterprise value that's just over 12 times last year's operating profit. Taking that as the yardstick, the Telegraph would be valued at less than 100 million pounds based on last year's performance. That rather generously ignores the fact that DMGT these days generates less than half of profit from its media business.

How might the Telegraph be worth the reported 665 million pounds sought? That would need high confidence that its turnaround, initiated by CEO Nick Hugh, is set to accelerate rapidly — that the low numbers of 2018 reflect increased spending that will boost growth. Or a buyer might eye the scope to cut a lot of duplicate costs. If the Daily Mail and the Telegraph were to join forces, the cost base from their combined media operations would be some 850 million pounds.

Cutting that outlay by 7% would add 60 million pounds to operating profit and more easily justify the Barclays' target price, but doing so could prove challenging given the extent to which costs have already been pared at both companies. More realistically, were the Telegraph's profit to return to 2017 levels, a valuation nearing 200 million pounds would seem more appropriate.

So the only way for the owners to achieve their asking price would likely be to find a billionaire who’s looking for much more than the typical vanity purchase, and is truly keen to sway how discussions to leave the EU evolve. Even if Britain’s initial deal to leave the trading bloc passes parliament by the end of January, there could be a transition period of negotiations stretching to the end of 2022.

Despite their declining readership, the Daily Telegraph and Sunday Telegraph remain hugely influential on the right of British politics. Before becoming prime minister, Boris Johnson himself was a weekly columnist for the daily newspaper.

In the U.S., a handful of storied publications have been snapped up by billionaire benefactors: Salesforce.com Inc. founder Marc Benioff and his wife Lynne bought Time magazine for $190 million last year; Amazon.com Inc. billionaire Jeff Bezos snapped up The Washington Post for $250 million in 2013; and Laurene Powell Jobs, the widow of Apple Inc. co-founder Steve, secured control of the Atlantic magazine last year. In each case, however, the valuation was far more realistic given the evolution of the news industry.

At any rate, there are probably cheaper ways to influence the debate in the U.K. And it’s hard to see how a buyer pursuing a single-issue agenda would be good for quality journalism.

If the Barclay brothers do indeed need to sell the newspaper to fund other businesses, as the Financial Times’s report on Sunday suggested, then they will need to be realistic about the asking price.

To contact the author of this story: Alex Webb at awebb25@bloomberg.net

To contact the editor responsible for this story: Melissa Pozsgay at mpozsgay@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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