Can Sly win the fight to save the 'Mirror'? It's no racing cert

When Trinity Mirror chief executive Sylvia "Sly" Bailey arrived at the troubled newspaper group in February 2003, only the journalists disliked her. They feared she was a cost-cutter with no respect for the campaigning, quality-popular history of the company's flagship papers, the Daily Mirror and Sunday Mirror, and its Scottish national titles, the Daily Record and Sunday Mail. Now the City is sceptical too.

Until recently analysts had been speculating that Bailey might announce a sale of Trinity Mirror's national titles when the group unveiled its business review on Thursday. Pulling out of the national market to concentrate on a regional division which, with 250 titles, is Britain's biggest, appeared a logical move. Advertising revenue at the group's national papers was down 8.8 per cent in the year to November.

But months of effort failed to flush out a plausible offer for the Mirror titles and no bids were received for the regional division, either. Neither will be sold intact. "Trinity Mirror's pension deficit [£200m] and debt [£500m] is a technicalbarrier to full demerger," says analyst Richard Hitchcock of Numis Securities. Instead, Bailey announced a partial sell-off that even her admirers consider unlikely to solve Trinity Mirror's problems.

The auction will include 137 local newspapers in the South and the Midlands - including The Birmingham Post, Enfield Gazette and Reading Chronicle, and the horse-racing punter's bible, the Racing Post. Trinity Mirror will keep its north of England, Welsh and Scottish titles.

Bailey insists: "These changes will enable the group to make a number of cost savings and also offer opportunities to generate additional revenue."

The Racing Post is an attractive prospect. It made £17m in 2005, £6.9m in the first half of 2006 and also shrugged off a challenge from failed newcomer The Sportsman. Potential bidders may include SIS, the broadcaster part-owned by William Hill and Ladbrokes that beams coverage to bookmakers' shops. Also said to be interested are the billionaire Irish entrepreneur Dermot Desmond, venture capitalist John Hahn of Providence Equity Partners, magazine publishing entrepreneur Felix Dennis and online gambling company PartyGaming.

Although profitable, the regional newspapers identified for disposal may prove harder to shift - although their break-up into small divisions may encourage interest from modest- sized players including the Kent Messenger Group and Archant, as well as large conglomerates such as Johnston Press and Newsquest, the British arm of US giant Gannett.

But analysts still dispute Trinity Mirror's business logic. "Keeping the UK and Scottish nationals leaves the company with a proportionately higher exposure to the national newspaper market, in which its titles are performing so poorly," explains one. "Circulation of the Mirror fell by 50,000 last month and the Daily Record was recently displaced as Scotland's biggest-selling tabloid by the Scottish Sun."

Alex Bell, director of the website allmediaScotland.com, sees sense in Bailey's approach: "The City might like to see the Record titles sold off, but these are cash cows that pump money into the system. The dip in sales for the Record is actually less than the decline at the Daily Mirror."

His, though, is a rare expression of confidence. Many media observers fear that Trinity Mirror will use amputation of relatively successful chunks to reward shareholders and reduce debts - not to invest in its remaining business.

That would make Bailey's approach very short-term indeed, because the Mirror titles and Trinity Mirror's Scottish nationals are desperately in need of investment. Their websites, in particular, are regarded as unexceptional by comparison with competitors.

Six months ago, Trinity Mirror retired to contemplate the reality that the Daily Mirror, Daily Record, Sunday Mirror and People were failing to compete editorially, poorly prepared for the challenges of the digital world and shedding advertising revenue fast. It promised to confront these problems with rigorous strategic thinking.

No one is yet prepared to write off Sly Bailey, who clambered from a junior job in advertising sales to become chief executive of IPC - and then sold the company for £1.2bn to AOL Time Warner. She has outstanding business and media credentials.

But Bailey and Trinity Mirror are facing their sternest test.

If a partial sell-off and £20m of fresh cost savings do not stabilise circulation and revenue declines and propel the group's ailing titles towards new digital markets, further disposals may be required within a year. Bailey's answer is that the Mirror and its sister titles generate 20 per cent profits with minimal capital investment and can do still better.

For the sake of her own reputation and Trinity Mirror's future, she had better be right.

MEDIA DIARY

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