Davis leads bid for Reed's regionals

MATHEW HORSMAN

Media Editor

Peter Davis, the former chairman of Reed Elsevier, is leading a bid to buy the Anglo-Dutch giant's UK regional newspapers. Prudential, the insurance group now headed by Mr Davis, is among the front-runners for Reed Regional, the pounds 220m newspaper group put up for sale earlier this year.

A further nine bidders have made formal approaches, of which four are likely to be rejected imminently.

That leaves six serious applicants, of which at least two are believed to be newspaper groups. The rest are institutional investors, according to informed sources.

A victory for the Pru would mark sweet revenge for Mr Davis, who left Reed Elsevier last year after a bitter disagreement over strategy and management structure.

Analysts last night speculated that the insurance giant might seek to break up the newspaper group and sell titles on to other buyers.

Of the remaining bidders, Midland Newspapers is believed to have made a formal offer. The company, which publishes the Birmingham Post, confirmed earlier this year that it was interested in acquiring Reed Regional, the country's largest publisher of free newspapers, with a combined weekly circulation of 4 million.

Unexpectedly, a management buy-out is not among the finalists, although key managers are thought to have aligned themselves with institutional bidders.

The sale might raise as much as pounds 220m, according to informed sources, although estimates range as low as pounds 150m. Last year, Reed Regional had sales of pounds 131m. Analysts said the likelihood of further newsprint increases, coupled with declining circulation suffered by many regional newspaper titles, would depress the price to below the usual two times revenues used to value publishing assets.

Despite the market conditions, the free newspaper market has weathered the generally difficult climate for print media by concentrating on cutting costs and closing unprofitable titles. Moreover, there has been consolidation in the marketplace, most recently through the pounds 327.5m sale of Thomson Regional Newspapers to Trinity. Regional newspaper owners believe further deals are likely, and that should improve prospects for the remaining groups.

Altogether, more than 60 groups received Reed's sales memorandum, including News International, the publishing group controlled by Rupert Murdoch's News International, and the Express Group, the latter itself the subject of speculation that it is prepared to sell off its regional newspaper holdings.

A spokesman for the group continued to stress yesterday that no decision had been taken over the fate of the Daily Express, the Sunday Express, the Daily Star and the company's regional titles.

Both News International, publisher of five national titles including the Times and the Sun, and the Express, owned by United News and Media, would probably have faced insurmountable obstacles from Monopolies and Mergers Commission.

Analysts pointed out that companies often express formal interest in auctions in order to review confidential material. It is believed that very few of the 60 applicants seriously intended to bid.

The sale is a stage in the disposal of Reed's consumer operations, which include its book publishing and Dutch newspaper businesses. All told, the company hopes to raise between pounds 700m to pounds 1bn from its disposals.