Deadline passes but battle for Telegraph still very much alive

The question most on the minds of those circling The Daily Telegraph, ahead of today's deadline for bids, was: is this auction for real?

Lazard Brothers, the investment bank charged with selling the assets of Hollinger International, the publisher of The Daily Telegraph, set today as the cut-off date for offers. But the sales process has been characterised by false starts, chaos and scepticism since it began in November.

Certainly a number of parties contacted yesterday by The Independent said they had made offers or they would make them by today but many questioned how meaningful the deadline actually was.

One leading contender, Collins Stewart, said it remained interested though it would not bother with making a bid by this deadline. Terry Smith, the chief executive of the finance house, said: "If I walk through the doors at Lazards, say next week, and say 'here's a bid for the whole of Hollinger', I'm sure they'd listen."

A senior source at another bidder put it more bluntly. "This deadline will come and go, with not a lot happening."

Hollinger International, the newspaper publisher built up by Lord Black of Crossharbour, has been in turmoil since last summer. Against Lord Black's wishes, the board of Hollinger put the company's assets up for sale in November, after accusing him of embezzlement. The offers required by today will be highly conditional, with binding proposals only required at a later stage.

The reasons why the bidders are sceptical are two-fold. Firstly, there is the question of Lazard's authority to sell the titles. Although a US court case last month backed the Hollinger board and Lazard, Lord Black is to appeal that judgment.

Secondly, the tax implications of selling Hollinger's papers, especially the Telegraph, are negative. Capital gains tax will wipe out 50 per cent of the likely selling price of the Telegraph, according to one estimate. Many believe this means that the company's assets will not ultimately be sold off at all.

Lazard has made clear that it wants "north of £600m" for Hollinger's British assets - The Daily Telegraph, The Sunday Telegraph and The Spectator magazine. It is believed to be seeking a similar sum for Hollinger's Chicago-based papers, led by that city's Sun-Times newspaper. However, given the tax problems, Lazard would much prefer to sell Hollinger as a whole. This would park the tax headache with the buyer of the company and provide a clean exit for Hollinger shareholders. Lazard is thought to want some $2bn (£1.1bn) for the lot.

While there is a queue of parties after the Telegraph, there seem to be very few interested in the company as a whole. There are also tax liabilities - on the books at $350m - at the group level, stemming from past disposals. And there are a string of lawsuits hanging around the company that would have to be faced by any buyer of the entire business.

The problem is that few newspaper companies have operations in both the US and UK and there is no industrial logic in having Chicago and UK newspapers. Rupert Murdoch's News International obviously has big interests in both countries but its existing high market share in the UK (32 per cent) counts it out.

Gannett has Newsquest, a large regional newspaper group in this country, plus major interests in the US, including USA Today. Last week, the company's chief executive, Douglas McCorkindale, said Gannett was "looking at the books" when asked about Hollinger.

Remember Gannett managed to outgun a dozen other bidders last year to secure Glasgow's Herald newspaper. But Mr McCorkindale said he was not prepared to pay a trophy price for the Telegraph. "If the Barclay brothers want to step up to a big number in the UK, they will probably beat us," he said.

That may leave Gannett realistically only vying for Hollinger's US assets, which have nothing like the trophy appeal of the Telegraph. Gannett could then work as the lynchpin for the whole sales process, allowing it to team up with any of the players that are willing to pay a high price for the Telegraph.

The Barclay brothers, Sir David and Sir Frederick, may have been blocked by the US courts in their attempt in circumvent Lazard's process but they are still considered the leading contenders, now that they are taking part in the auction. One of their UK rivals said: "If they are still interested, they are extremely likely to buy [the Telegraph]. They appear to have the ability to pay more than it is worth."

The Barclay brothers and Richard Desmond, who run private businesses, are thought to have offered more than £600m for the Telegraph. DMGT, which is listed, has synergies but is unlikely to be willing to pay such a hefty price. Similarly, the many financial players sniffing around the Telegraph need to make the numbers stack up in a way that may not trouble the Barclays and Mr Desmond.

DMGT's market share (21 per cent, including London's Evening Standard) will also count against it with the regulator that will scrutinise the bids. The Telegraph has some 8 per cent of the national newspaper market, while Mr Desmond's Express Newspapers has around 14 per cent. The Barclays have no significant regulatory problems on competition grounds.

However, all trade bidders must pass a "special public interest" test. Many believe that this is where Mr Desmond, who made his fortune in pornography, could come unstuck.

Also, this test allows for ministerial interference. Tony Blair and his wife are sworn enemies of the Daily Mail and The Mail on Sunday. New Labour will not want to see the Telegraph, which is already an opposition voice, be turned into a version of the virulently anti-Blair organ that is the Mail.

There are many other possible contenders, such as Axel Springer or the New York Times Company. One UK media executive said: "Whenever a national newspaper asset comes on to the market, someone comes out of the blue for it."