INDEPENDENT Newspapers is expected to move to buy out the O'Reilly family trust's holdings in Australian Provincial Newspapers and the New Zealand newspaper group Wilson & Horton following the £106 million rights issue which will sharply reduce Independent's debt.
While Independent has merely said that the proceeds of the rights issue long expected by the market will be used to reduce debt and strengthen the balance sheet, informed sources said that cleaning up the Australian and New Zealand interests would be a priority.
Independent directly owns 25 per cent of APN and has an equal share in the joint venture with the trust, which owns 45 per cent of Wilson & Horton. Buying out the trust's stake in APN would cost around £50 million at current stock market prices, while the trust's stake in Wilson & Horton would cost around £100 million.
The £106 million rights issue, net of expenses, gives Independent the financial muscle to do both these deals while still having a very comfortable balance sheet. After the rights issue, Independent's debt equity ratio will fall from 56 per cent to 14 per cent.
Even spending £150 million buying out the O'Reilly trust's interests in Australia and New Zealand would bring the debt equity ratio back to 50 per cent, given the expected increase in end 1996 shareholders funds to around £400 million.
At yesterday's annual general meeting, Dr Tony O'Reilly said that he was comfortable with the 100 per cent gearing commonplace in the US and at Heinz, where the Independent chairman is president and chief executive officer.
Sources in Australia have suggested that another possible use for Independent's financial firepower is a bid for the Telegraph, the Sydney daily that Mr Rupert Murdoch will probably be forced to sell if he becomes involved in a head to head takeover battle with Mr Kerry Packer for control of the Fairfax newspaper group. Australian media ownership rules would compel such a sale by Mr Murdoch in that situation.
The Telegraph is a mid market Sydney newspaper with daily average sales of 446,000 and, according to local sources, generates huge cash flow through its dominance of the classified advertising market. It is thought to be hugely profitable and, given its circulation, would be very expensive to buy even if Mr Murdoch does emerge as a forced seller.
Sources close to the company said, however, that while Independent would undoubtedly look at the Telegraph if it came on the market, moves to buy out the trust's interests in APN and Wilson & Horton were likely to be given a higher priority.
At yesterday's annual meeting, Dr O'Reilly said. "There are plans. They could be the rationalisation of Dublin, it could be the purchase of national or regional titles in Britain, it could be expansion in South Africa or consolidation in New Zealand or further investment in Australia."
Under the terms of the rights issue, Independent is offering one new share for every three held at 270p each, a price that takes account of the proposed two for three capitalisation issue. The offer price is the equivalent of 450p before taking account of the capitalisation issue, a 13 per cent discount on the previous market price of 515p. Following the announcement, Independent shares eased 15p to 500p.
Dr O'Reilly is to spend almost £23 million or close to 78 per cent of his entitlement, but a spokesman for Independent said that Dr O'Reilly would be exercising share options that would maintain his share holding at over 27 per cent. If Dr O'Reilly had not exercised these options, his share holding would have fallen to below 26 per cent. The balance of the issue has been underwritten by Bankers Trust International and Davy stockbrokers.
