Stacking the odds

Behind the scenes, the temperature had been rising for some time. Documents released to The Sunday Times under the Freedom of Information Act show that INM warned Naughten’s department and the BAI that it would abandon the deal if “unworkable conditions” were imposed on the takeover.

The final conditions drawn up by Naughten’s department included one that required that the editors of the five paid-for Celtic Media titles and their staff be kept on their existing contracts. The editors should be entitled to appoint their own journalists, decide on content and have editorial autonomy.

INM would be required to create a new role of regional managing director with responsibility for the Celtic Media titles. The editors of the titles would report to that person only “to the limited extent necessary for commercial issues”.

If INM decided to close any of the Celtic Media titles, it would have to offer the paper for sale, rather than shut the doors and use its assets. Crucially, the department insisted that the conditions would remain in effect for three years after the deal was approved.

INM said an 18-month enforcement period was more appropriate, given the financial pressures on publishers and the pace of changes in technology. Celtic Media backed INM, saying 18 months was “a sensible time in an industry which has seen fine titles such as the Roscommon Champion, Athlone Voice and The Longford News close in our area in recent years”.

Celtic Media, which is headed by Frank Mulrennan, a former INM executive, employs about 100 people at five paid-for local titles plus two freesheets

FERGAL PHILLIPS

Naughten’s department, meanwhile, sought the advice of the attorney-general on what conditions could be imposed. The advice was that the minister could “impose any conditions he sees fit . . . provided they are relevant, reasonable and proportionate”.

On May 30, Naughten’s officials signed off on the determination and final conditions. Not willing to accept the terms, the parties abandoned the deal.

The Celtic Media saga has effectively closed off an expansion route for INM, and a survival route for other regional titles. An INM bid to acquire any part of Landmark Media, publisher of the Irish Examiner and several regional titles, for example, would almost certainly attract stringent conditions.

In a strongly worded statement last week, INM said the regulatory process around the proposed Celtic Media acquisition took too long, cost too much and failed to take account of commercial reality. The conditions recommended by the BAI “were unhelpful in terms of the overall viability of the transaction”, it said, and “a significant opportunity” for both INM and Celtic Media was lost.

“It is essential that newspaper consolidation takes place, be that on a regional, national or global basis,” INM said, echoing Pitt’s words from last September. “The alternative is that these rates of decline will accelerate, resulting in the closure of newspaper titles, the loss of managerial, editorial and production jobs, and ultimately the loss of diversity of voice.”

On paper, the takeover of Celtic Media by INM, whose stable includes five national titles, appeared to make sense. Celtic Media, which is headed by Frank Mulrennan, a former INM executive, employs about 100 people at five paid-for local titles: the Westmeath Independent, Westmeath Examiner, The Anglo-Celt, Meath Chronicle and Connaught Telegraph, plus two freesheets.

The Mulrennan-led group bought the business for €5.5m in 2012 from Dunfermline Press, which had paid about €65m to assemble the papers. The INM deal was worth about €4m, reflecting falling sales and revenues since then.

At first, the deal appeared to be on track. The CCPC gave its blessing on November 10, taking the view that local and regional papers were separate products in separate markets and it would “not substantially lessen competition”.

The department’s first-phase review delved deeper into the ownership of the two companies, however, including the 29.9% stake in INM held by businessman Denis O’Brien, who also owns the Communicorp radio group. It noted that Communicorp’s Newstalk station provided a news service to 33 radio stations around the country, including areas where Celtic Media had newspapers.

Based on there being 78 regional papers in Ireland, the percentage of regional titles owned by INM would go from 16.6% to 25.6%, if the deal went ahead. INM and Celtic Media pulled no punches about the need for a deal, supplying “a substantial amount of data” about declining newspaper sales.

“The parties state that the long-term viability and quality of the [Celtic Media] newspapers could be at risk if the proposed transaction does not go ahead,” the department review noted.

Celtic Media said it was reliant on short-term bank funding and had to sell a property in Cavan to generate funds as the review of the INM takeover dragged on. In February, it suspended publishing of Your Forum, a freesheet in Meath.

INM, meanwhile, said it had preserved the “local identity and content” of other regional papers it had acquired. Unswayed, the department concluded that if the deal went ahead, there would be “an increase in the market shares and influence” of both INM and O’Brien. “Given Mr O’Brien’s significant interests in other relevant media assets, the proposed acquisition would likely lead to a greater concentration of his significant interests,” it said.

In January, it referred the deal to a full phase-two review by the BAI, which has a statutory remit to protect media plurality. In February, an advisory panel was set up to assist the BAI, comprising academics John Horgan, Peggy Valcke and Marie McGonagle.

They looked in detail at the operations of the papers, and began to suggest that conditions be imposed. The panel noted that the National Union of Journalists had “serious concerns” that the deal would lead to a loss of editorial independence.

“Steps should be taken to ensure that there is no management or board crossover between the merged assets and other relevant assets, particularly radio assets,” it said. “Mr O’Brien’s ownership across the newspaper publishing and radio sectors requires careful scrutiny above and beyond that of INM.”

The advisory panel also argued that if Celtic Media’s titles were bolstered by being taken over by INM, other competing titles could close. In its report on March 9, it said the deal should go ahead, with “reasonable and enforceable commitments”.

At the same time, a separate report commissioned by the BAI from Communications Chambers, a UK media consultancy, recommended that the deal should be cleared without conditions. Extracting guarantees from INM about retaining jobs at Celtic Media jobs was “unrealistic”, it said, and could put pressure on other parts of the INM group. It added: “We note that there can be no guarantee for the long-term survival of any local newspaper.”

The BAI’s phase-two report chose the harder line of imposing conditions. Its draft report, circulated to INM and Celtic Media on March 27, proposed that INM should retain 24 journalists at the Celtic Media titles.

It also noted comments by Pitt at the Oireachtas committee in February that INM would guarantee the rights of all employees joining from Celtic Media, and said those commitments should be confirmed to staff. It is understood that INM disputed that Pitt’s comments should be taken as legally binding.

INM also strongly objected to the draft condition that 24 reporters be retained. The condition “failed to take account of technological advances in news gathering and publishing, and the financial circumstances of Celtic Media”, it said.

On May 18, INM’s lawyers, Matheson, wrote to the department raising concerns with “the process in general, and the conditions proposed by the BAI in particular”. Mulrennan also “outlined his concerns with the BAI’s conditions” in a letter to the department.

After the objections, the department dropped the requirement to keep 24 journalists. “Staffing numbers are a matter for individual companies and are subject to shifting market forces,” it said.

It stuck to the other conditions, however, including the three-year rule, and made its determination in May. Three days later, before the decision was published, INM and Celtic Media walked away.

The way forward for INM and Celtic Media is not clear. INM issued a profit warning last month (see panel) and its merger and acquisition activity is on hold. Mulrennan has warned that the newspaper business model is “broken” and there may be “a return to redundancies” at Celtic Media. INM’s calls for an urgent debate on media in Ireland looks likely to fall on deaf ears.

Storm clouds hover over INM’s annual meeting

The clock is ticking down to Independent News & Media’s annual meeting on August 23, against the backdrop of a profit warning and a row between chief executive Robert Pitt and chairman Leslie Buckley, writes Gavin Daly. The men are in dispute over a proposal that INM buy Newstalk, a radio station owned by Denis O’Brien, a 29.9% shareholder in INM and close associate of Buckley.

Pitt has made a protected disclosure to the Office of the Director of Corporate Enforcement under whistleblower rules and INM is conducting an independent review of its corporate governance. In its profit warning on July 19, it flagged the costs of these, as well as declining circulation, falling advertising revenues, poor digital growth, heavy libel costs and uncertainty from Brexit. Profits are expected to be €30m this year, €10m below forecasts.

Pitt has said, meanwhile, that he “reserves his position” on the motions being put to the meeting by the INM board. The move is believed to relate mainly to the re-election of Buckley. It is understood talks are taking place between INM and Pitt.

INM is valued at €151m, but is on track to have €100m cash by the end of the year, fuelling speculation that O’Brien or others could bid for it.