For a company surrounded by takeover speculation for some time, there was little in the share price to suggest Independent News & Media (INM) was a sitting target.
At the start of this week, INM’s market valuation stood at €97 million at a time when it has a cash pile of almost €82 million.
That implied investors were valuing the largest newspaper publisher in the country, its print distribution unit, and some other assets, at only €15 million.
Results from INM last Friday – showing that profit before tax fell in 2018 by 15.4 per cent to €24.1 million as revenues dipped 2.1 per cent – reflect all-too-familiar problems in the industry, with circulation revenues declining 6.3 per cent and publishing adverting revenues falling 10.8 per cent.
O'Brien is estimated to still be sitting on a paper loss of more than €500 million on his investment in the company
Digital ad sales, too, went in the wrong direction, off 1.7 per cent.
And while INM chief executive Michael Doorly has been signalling for more than a year that INM will follow most old media houses in pursuing a subscription model to act as a buffer as other income lines decline, he admitted last week that it could be next year before this is up and running.
Rebuilding
Sources briefed on meetings INM held with members of the investment community since the results say the company’s website is not capable of processing payments and that INM’s board, while having committed €5 million to its new strategic plan, dubbed INM@21, has not signed off on a rebuilding of the site.
It wouldn’t inspire confidence.
However, the tardiness may be fortuitous. There is a view that INM has concluded it makes little sense to reinvent the wheel and that it would be a natural takeover candidate for a larger media company that is further down the digital path.
It is in this context that Doorly’s comments in meetings during the past week that INM may end up being sold – first disclosed by The Irish Times on Thursday – make sense.
The CEO’s openness during those meetings, and a move by the share price on the back of the report, forced INM to issue a stock market statement confirming it had received an approach from an unnamed suitor.
The talks are “at a preliminary stage”, it said.
Sources have said that some usual suspects – German media group Axel Springer, Norway's Schibsted and the London-listed owner of the Daily Mail – are not yet involved.
Suggestions that Finnish media group Sanoma and Rupert Murdoch's News Corp, owner of the Sunday Times, The Times' Ireland edition, and The Sun, may be behind the overture have also been played down by people familiar with the matter.
Spokespeople for all have declined to comment.
Bidding tension
INM’s long-suffering shareholders would hope that some of these names may be tempted onto the pitch, if only to create some bidding tension.
Possibly the biggest drag on INM's market value in recent times has been corporate governance concerns, since it emerged in late 2016 that then chief executive Robert Pitt had locked horns with his chairman Leslie Buckley, a long-term associate of the company's largest shareholder Denis O'Brien, over a mooted takeover of Newstalk, an O'Brien-owned national radio station.
Advisers hired by Pitt to value the business had come up with a figure well below the price sought by O'Brien's Communicorp for Newstalk.
The Office of the Director of Corporate Enforcement (ODCE), which started looking into the matter following a protective disclosure by Pitt under whistleblower legislation, subsequently went to the High Court a year ago to have inspectors appointed to INM to investigate "potentially unlawful conduct" at the company.
An affidavit by ODCE director Ian Drennan claimed a company controlled by O'Brien, who owns almost 30 per cent of INM, paid the bill for an IT firm to access the media group's computer network in 2014.
It also alleged Buckley facilitated the “interrogation” of the gleaned data, including emails of 19 people such as journalists and lawyers, who had previously crossed swords with O’Brien.
Buckley has pledged to “fully and robustly” defend himself against “each and every allegation” made against him.
Some of the allegedly affected individuals – former INM CEO Gavin O'Reilly and its former director of corporate affairs Karl Brophy – have initiated legal proceedings against the company last month, claiming breach of privacy.
INM’s full-year results show that it booked €3.5 million of legal costs on related investigations by the ODCE and the Data Protection Commissioner, in addition to unspecified related charges in 2017.
Bullish
And while the view has been that any potential INM acquirer would be unlikely to emerge until all legal issues are put to bed, it appears Doorly was very bullish in meetings with analysts that future costs would be limited and that it would be able to pursue others should wrongdoing be proven.
Has the company devoted more attention to trying to work out the limit of costs on such legacy issues rather than planning for a digital figure?
Sceptical
O’Brien’s presence on the shareholder register, which first emerged in early 2006, has always been odd for a man who’s not been shy in taking legal actions against the press.
Similarly, Dermot Desmond, who built up a 15 per cent holding between 2011 and 2013, and fellow billionaire Larry Goodman, who accumulated a stake of below 3 per cent almost a year ago, are known to have sceptical views of the workings of the media.
While Doorly has said that he doesn’t know the views of O’Brien and Desmond on an INM sale, it’s unlikely he would have flagged a potential disposal before forming a strong view that they would be willing sellers.
While INM’s market value has soared as much as 36 per cent in the past two days to almost €138 million, O’Brien is estimated to still be sitting on a paper loss of more than €500 million on his investment in the company.
The question is whether he feels that now may be time to cut his losses and allow INM to open a new chapter.
