Mail group puts regional papers on the block for £1.5bn

Lord Rothermere, the chairman of Daily Mail & General Trust, shocked the City and the media industry yesterday by turning his back on family history and announcing plans to sell off his company's vast stable of regional newspapers.

Most of the proceeds - estimated at £1.5bn - will be returned to shareholders. The holding of the Rothermere family, which started the company in 1896 with the launch of the Daily Mail, would entitle them to about one-quarter of the figure returned to investors, while some of the money will be used to pay down debt.

DMGT's regional interests, which include the Leicester Mercury and the Bristol Evening Post, date back 75 years and form its Northcliffe division. Greenhill, the investment bank, has been hired to auction off Northcliffe, with the buyer having to take on any regulatory risk.

The other three main regional newspaper players - Trinity Mirror, the US-owned Newsquest and Johnston Press - are expected to take part in the bidding. But given the hurdles they will face from the competition authorities, a private-equity buyer is seen as most likely to win the auction. Candover and a bid led by the former Mirror Group chief executive David Montgomery are among the fancied financial contenders at this early stage.

Lord Rothermere, 37, who has been chairman since 1998 and the fourth member of the family to run the company, immediately stressed that DMGT would go on owning its Associated Newspapers division that houses the national titles - the Daily Mail, The Mail on Sunday - and the Evening Standard in London.

"The group remains fully committed to the continued growth and development of Associated Newspapers. Its titles are at the heart of DMGT and will continue to be so," Lord Rothermere said in a statement.

Charles Sinclair, DMGT's chief executive, said selling Northcliffe was a "pretty emotional" decision for Lord Rothermere. "He's a relatively young proprietor concerned with the shape of this business in 30 or 40 years from now," Mr Sinclair said.

The company insisted the move was not a reaction to the threat of the internet. In the face of huge growth in web advertising, many in the media industry are pessimistic about the prospects for newspapers, especially those - such as regional titles - that are heavily reliant on classified ads.

DMGT reported financial results yesterday for the year to October, which showed advertising at Northcliffe slowed substantially in the second half, with classified recruitment ad sales down 11 per cent in this period. Since then, recruitment has been running 20 per cent down.

Peter Williams, DMGT's finance director, said: "I don't believe this is internet migration. It is cyclical. The economy has slowed down and they're not recruiting people." He said the company had decided it would never be able to take Northcliffe's margins, at 20 per cent, to the best performers in the industry - some 30 per cent - without compromising editorial standards. DMGT was also not prepared to pay the sort of sums that regional papers were fetching, so there was no room for expanding the business either, he said.

Experts said competition problems for trade players were not insurmountable. Some speculated that a joint bid, perhaps between one of the big three and a smaller player such as Archant, could help by dividing up the spoils.

Howard Cartlidge, a competition law partner at the law firm Olswang, said: "To go from four to three [major operators] is not usually fatal. Three is still a reasonable number but you're getting into trickier waters."