Deal or no deal: DMGT emerges £20m ahead after freesheet wars

Unlikely as it might seem, the disappearance of The London Paper, the pending closure of London Lite and the Evening Standard‘s switch to free distribution represents a enviable trio of victories for Daily Mail & General Trust.

Compare DMGT’s current situation with its context a year ago:

  • The Evening Standard is no longer costing DMGT’s shareholders £10m a year in losses. . .
  • . . . but DMGT retains a 25% stake in the Standard, and will therefore benefit if its free distribution model succeeds.
  • Following the closure of The London Paper, News Corporation is no longer a tiresome irritant in London.
  • DMGT’s London Lite will soon be gone, taking annual losses of £10m with it.
  • DMGT should now be able to nurse Metro — rumoured to have made profits of £8m a year when times were good — through the rest of the recession. Cutting losses elsewhere should allow DMGT to bid handsomely for a renewed distribution deal with Transport for London.
  • Presumably, the future also looks slightly brighter for the Mail and the Mail On Sunday.

DMGT’s hold on London continues to look reasonably strong, and the balance of risks has improved. For good measure, DMGT has improved the annualised profit potential of Associated Newspapers by £20m or so.

This is important. The speed with which newspaper owners can cut costs remains the only factor that differentiates them from one another in the eyes of short-termist investors. It will take Trinity Mirror’s bean-counters months to grind out the same kind of savings at Fort Dunlop and elsewhere.

No wonder some see this sequence of events as too good to be true. Hence the nods and winks delivered by Steve Busfield at Media Guardian this week:

Was a deal done to end the ear-bleedingly expensive London freesheet wars? Will DMGT now offer a shared ownership or printing deal to News International for Metro? I’m sure that such a deal, were it to have been done, would breach some kind of anti-competitive rules.

No doubt. But consider the risks of an anti-competitive side-deal. If discovered, it would provoke a huge outcry. With good reason, the chief executives of quoted companies (and their lawyers) tend to be very worried about the risk of discovery.

In any event, the rough equivalence in terms of the outcome for DMGT and News Corporation suggests that there was limited room for a stitch up.

In the year to June 2008, The London Paper lost £12.9m on News Corporation’s behalf. This year’s losses will have been larger. They might even have approached £20m — roughly the amount that DMGT has saved on an annual basis by selling the Standard and shutting Lite.

If News Corporation wanted a side-deal, its only bargaining chip would have been the nuisance value of continuing to publish The London Paper. With News Corporation under pressure from investors to bolster margins within its newspaper division, that threat had lost much of its credibility.

If DMGT and News Corporation agreed something on the side, no doubt we’ll find out soon enough. But the numbers suggest that it really wasn’t necessary.

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