A few points on the Johnston Press rights issue.
First of all: the discount at which investors will be able to buy new shares issued by Johnston is massive: 61%.
Remember, too, that the company’s share price has already plummeted from 275p in January to 115p now. The new shares will be available at 53p a pop.
That’s a lot of sugar to sweeten Tim Bowdler’s unexpected pill. By contrast, Carlsberg, the brewer that’s been hit hard by recession, is hoping to deliver a similarly big rights issue at a 40% discount.
Yesterday, Bowdler and his lieutenants underplayed their pessimism about ad revenues. Between the lines, however, the belief that ad markets are in serious trouble is obvious.
The discount signals that Johnston Press has limited options. Disposals (at a reasonable price) are unlikely.
But what about cost cutting? Yesterday’s call with analysts was notable for containing zero discussion — on either side — of the potential for job losses.
At this point, wry smiles will cross the faces of Johnston Press employees accustomed to working for a company that squeezes 30% operating margins out of its papers.
Still, the omission will seem odd to those investors who are temperamentally keen on the widespread sharing of pain. If investors start asking questions about Johnston’s cost base, things could get tricky.
More broadly: where does Johnston’s rights issue leave the regional newspaper industry?
Crowded into its respective territories across the UK with the hatches battened down as revenues decline by 10%+ on an annualized basis.
For the next year or two, the industry will be a lot more boring than it was in the credit-crazed mid-Noughties.
So far as Bowdler & Co are concerned, the market for consolidation is firmly shut. Only limited horse-trading is on the agenda.
Johnston might be interested in the occasional digital deal, but even that’s unlikely. (Unlike Trinity Mirror, which likes to acquire digital revenues, Johnston Press believes that what’s needed is the “digitization” of its existing operations.)
Interestingly, Tim Bowdler believes that doing so needn’t cost “an arm and a leg”.
Looking ahead, yesterday’s announcement could come to be seen as the birth of a different kind of Johnston Press.
Much will depend on the identity and preferences of Johnston’s new chief executive, who will succeed Bowdler in 2009. By then, much of Johnston’s debts will be up for re-financing — and the company will embark on a new chapter in its history.
During yesterday’s conference call, the “hypothetical” talk was of returning free cash flow to investors, rather than embarking on more acquisitions when the economy recovers.
In more ways than one, it’s the end of an era.