The Lebedev Standard, Part 1: What's in the deal?

The press release announcing the sale of the Evening Standard to Alexander Lebedev issued by Daily Mail & General Trust yesterday morning described the purchase price as ‘a nominal sum”.

By this morning, at the hands of Times media reporter Dan Sabbagh, this had become ‘a very nominal sum”.

DMGT’s euphemism spared Lord Rothermere from confirming Sabbagh’s previous forecast that the Standard would be offloaded for £1.

That said, preference shares might be part of the deal. According to the FT: ‘If the Standard moves back into profit, Associated will receive preferential rights to some of the profits.”

This resembles the way in which Sir Alex Ferguson attaches conditions to transfer fees. If the Standard makes the Champions League final in terms of profitability, its former owner will benefit ahead of the Lebedevs. If the FT is correct, that “nominal fee” gets cast in a slightly different light.

But why did the Standard sell for so little? The FT‘s Lex column would argue it’s because this is a ‘zombie’publication that will lose anywhere between £10m and £20m this year.

Selling it for next-to-nothing will add £110m to DMGT’s enterprise valuation, says Lex. That reward will have to be sufficient for now.

Predictably, the Standard itself struck a cheerier note yesterday. The nominal sale price, it suggested, is attributable to ‘assurances that [Lebedev] will invest substantial funds in the paper over the next few years”.

One publisher’s losses are another’s investments. At the Telegraph, the ‘substantial funds’promised by Lebedev were pegged at £25m ‘over three years’by Amanda Andrews.

Investing that money on top of the Standard’s existing annual losses –- estimated at anything between £10m and £20m — would be hugely ambitious.

It seems more likely that Andrews is talking about Mr. Lebedev’s tolerance for continuing losses, rather than net new investment. This, too, is the implication of Lebedev’s suggestion this morning, in an interview with the FT, that he will “subsidise 20% of the [Standard’s] running costs” for “quite some period of time”.

Under this scenario, Lebedev will cut perhaps 10% of jobs, and the Standard will attempt to plough onward. With cost cutting balanced out by continued ad declines, the bottom line probably won’t look much different in the short term. Much will therefore hang on the success of efforts to locate and retain new readers.

Indeed, the Standard’s finances could be a lot worse by the end of the recession. For a while yet, Standard employees will be praying that Mr Lebedev’s National Reserve Bank –- the source of his personal fortune — proves more resilient than Royal Bank of Scotland.

DMGT’s announcement contained no suggestion that Lebedev would assume any of DMGT’s debts.

Neither was there any discussion of side agreements (involving News International or anyone else). This despite the FT‘s suggestion last week that DMGT was keen to prevent Lebedev using the Standard to ‘favour a competitor such as News International”.

Interestingly, DMGT’s announcement contained the news that its continuing 24.9% stake in the Standard would be a passive one.

In other words, DMGT won’t be taking a seat on Lebedev’s board. As predicted, DMGT is suggesting that it will supply ‘a range of support services’to the Lebedev Standard.

DMGT also confirmed that it would continue to publish London Lite

At the Independent, Paul Burrell suggested that the freesheet might become ‘an afternoon edition of the morning free Metro, also part of Associated Newspapers, but with a more national perspective and editions in other cities”.

In the end, it was perhaps predictable that almost half of the 1,092 words in DMGT’s announcement were devoted to biographical sketches of Alexander and Evgeny Lebedev.

Among other things, the ‘notes to editors’reminded us of the Lebedev family’s attachment to The Fair Russia (Socialist) Party and its ownership of hotels in France, Italy and the Crimea.

Some things about press barons are eternal. A healthy disregard for modesty is one of them.

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