Why Trinity Mirror’s renewed merger talks with Express Newspapers are more likely to succeed this time around

by Paul Connew, taken from The Drum 10.01.17
The long-running ‘on-off’ courtship of Richard Desmond’s Express newspaper arm by Trinity Mirror seems to be back on again. And this time, according to insiders, there is a more realistic chance of a deal being struck.
The initiative was launched by Trinity Mirror – Britain’s biggest publisher of local newspapers as well as the Daily and Sunday Mirror and Sunday People national titles – as part of chairman Simon Fox’s declared ambition to try and expand the group as it faces the mounting challenges of the digital age.
It also comes against the backdrop of growing rumours that billionaire Express owner Desmond has become increasingly interested in moving into the commercial property sector on a big scale and reducing his involvement, or even pulling out altogether, from the publishing world.
The new discussions are the sequel to protracted, and often ill-tempered negotiations that started two years ago but ended acrimoniously last year, with disagreements over price and the pension deficit carried by the Express titles. At the time Richard Desmond told The Drum that Simon Fox “is more interested than I am” in doing a deal.
Over the past 12 months Trinity Mirror’s share price has slumped by 42% in the face of sliding circulations and online advertising figures substantially outweighed by the decline in print advertising. Trinity Mirror is believed to be only attracting 13p of new online advertising for every £1 it loses in print.
Following growing rumours in the City, Trinity Mirror was preparing to make a statement to the Stock Exchange today confirming that negotiations with Desmond are at an “early stage”.
Sources close to Desmond suggest that the Express Group proprietor is still “determined” to drive a hard bargain but concede that he is “warmer” towards a deal than in the past. They also insist that Desmond has not taken a firm decision over whether to pull out of the publishing industry altogether and it’s unclear whether his magazine interests – including OK Magazine – would be included if the negotiations led effectively to a Trinity Mirror takeover.
Another source close to the discussions predicted “this time I’d put the prospect of a deal being done at 75% plus”. He added: “There is still plenty of scope for a slip between cup and lip, given past hostilities. But the increasingly challenging media landscape in the digital age is driving both parties back to the table with serious intent. The bigger question isn’t so much whether a deal is done, but what sort of deal it’ll be. A full takeover by Trinity or a merger of certain operations with Richard Desmond still retaining a significant stake and exerting influence on the operational future.”
Initially, the talks are understood to centre on a merger structure rather than a full scale takeover deal involving combined back office and sales operations that would produce substantial savings for both groups. Sources close to Desmond insist that – unless Trinity Mirror come up with an “extraordinary offer” for a full takeover – the Express owner is only open to Trinity Mirror taking a “minority stake” and a “mutually beneficial” merging of those back office operations.
It is, perhaps, particularly significant that Desmond’s Express Newspapers is not involved in ‘Project Juno’ – a scheme being developed by Trinity Mirror, the Telegraph group, Rupert Murdoch’s News UK, owners of the Sun and Times, together with the Guardian. The collaboration, still in a relatively embryonic stage, envisages combining print and digital sales as part of a newspaper industry fightback against the dominance of Google and Facebook.
Some analysts have read Desmond’s reluctance to join Project Juno as a sign he is contemplating a total withdrawal from the newspaper and magazine business. Even so, the hard-bargaining Express owner last year reported a tripling of pre-tax profits during 2015 to £30.5m, but achieved through large-scale editorial redundancies and reduced printing costs.
Earlier Desmond had made a huge profit from selling his Channel 5 TV business to MTV owner Viacom for £463m.
And last year Desmond also unloaded his soft porn TV channels Television X and Red Hot and completely stripped away the controversial “porn baron empire” that helped him become one of Britain’s richest men.
Over at Trinity Mirror there were red faces last year when, largely as a reaction to the collapse of its Express takeover ambitions, the group launched a new national daily, New Day, which dismally failed to attract an audience and closed within eight weeks. This was despite a £5m launch budget beneath the slogan “Seize the New Day” and bold claims this was the paper “for people who don’t buy newspapers.” Only to prove that it was no exception.
It was also a legacy of the collapse of Trinity Mirror’s talks with the Express Group that saw it strike a £220m deal to acquire the regional newspaper publisher Local World headed by the Mirror Group’s own former boss, David Montgomery. The deal added over 100 regional titles to Trinity Mirror’s existing portfolio of 130 local titles and cemented the group’s position as the UK’s biggest regional newspaper publisher, despite a continuing programme of closures and cutbacks.
In the short term at least, it helped Trinity Mirror report a 42% rise in pre tax profits for the first half of 2016 to £66.9m, up from £47m. It also helped jack up revenues across Trinity by 30 per cent year-on-year to £374.7m. Against that, however, analysts were quick to flag up that the Local World acquisition merely masked the continuing decline in Trinity Mirror’s core business and it’s very much against this back drop that the group has returned to wooing Richard Desmond. Asked for a comment today, Richard Desmond told The Drum: ”Happy New Year Paul. But it’s all still speculation and nothing has been agreed.”
Paul Connew is a media commentator, broadcaster and a former editor of the Sunday Mirror and deputy editor of the Daily Mirror. He is also one of the authors of a new book, Last Words? How Can Journalism Survive The Decline of Print?, published by Abramisexpress