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A Feeding Frenzy On Fleet Street


That was a big slab of humble pie Conrad M. Black had to eat. On Nov. 17, the publishing mogul interrupted a promotional tour for his biography of Franklin D. Roosevelt to announce his resignation as CEO of Hollinger International Inc. (HLR), owner of Britain's Daily Telegraph, the Jerusalem Post, and the Chicago Sun-Times. An independent investigation revealed that Black, three other executives, and a company Black controls pocketed $32 million in undisclosed payments for such things as noncompete agreements.

More important than the resignation is the news that Hollinger International has appointed investment bank Lazard to "assess its options." Translation: Some if not all of the empire, which ranks a global third in circulation behind Rupert Murdoch's News Corp. (NWS) and Gannett Co. (GCI) of the U.S., may be up for grabs. "There are going to be a lot of interested people," says Christopher H. Browne, managing director of New York-based investment firm Tweedy, Browne Co., Hollinger's second-largest shareholder.

JUICY PRIZE

If Hollinger is broken up, the British media scene is in for a major shake-up. The crown jewel is Telegraph Group Ltd., owner of the Daily Telegraph, the Sunday Telegraph, and The Spectator magazine. Dubbed "The Torygraph" due to its reputation as the unofficial mouthpiece of the Conservative Party, the Daily Telegraph is Britain's top-selling broadsheet. The editors' news judgment may be a trifle off, though: The Telegraph carried the story of Black's resignation on page 36.

No matter. The sale of a paper this size hasn't occurred in Britain in years. Price wars and the ad recession have driven operating margins down from 19% to a recent 10% at the Telegraph, says newspaper analyst John Morton of Morton Research in Silver Spring, Md. Still, the Telegraph's powerful brand means it could fetch from $680 million to $1.1 billion. Telegraph holdings generated $545 million in revenues in 2002, with operating profits of $54 million.

One thing is certain: Black won't yield without a fight. "I'm still the chairman, I'm still the chairman of the parent company, I'm still the controlling shareholder, and I made 50 million bucks yesterday," the bombastic 59-year-old Black boasted to reporters on Nov. 18, referring to the jump in Hollinger shares on hopes he would be ousted. "We are exploring a whole range of alternatives, from recapitalization to selling everything," he says.

Black may try and hang on to the Telegraph, selling off the Chicago Sun-Times, a profitable tabloid, instead. The likeliest alternative, though, is a sale. Hollinger Inc., the entity that controls Hollinger International, has outstanding debt of $730 million and admits it may not meet its obligations unless it "completes financing or sale of Hollinger International's assets."

PORN AGAIN

That's why the prospect of snaring the Telegraph has rivals lining up. Richard Desmond, who owns the tabloid Daily Express as well as adult magazines, is thought to be a front-runner: He already owns half of the Telegraph's printing plant. Just hours after Black stepped down, Conservative Party leader Michael Howard met with Desmond, a Labour donor, to secure a promise that the Telegraph will not sever its Tory links, the British press reported. Desmond is eager to shed his porn-peddler image, and his bid wouldn't be burdened by antitrust considerations, as would be the case for Daily Mail & General Trust PLC, which controls 20% of Britain's newspaper market. Another possible bidder is Newsquest Media Group, a Gannett-owned British publisher of regional and local newspapers.

Private equity players may join in, too. Stephen Grabiner, the ex-managing director of the Telegraph, is now with Apax Partners, a leading venture capital firm in London. Colin Buffin, managing director of VC firm Candover Investments, which used to own Daily Mail & General Trust, his signaled his interest. Only one question: When the Telegraph is sold, will it run the story on page 36? By Kerry Capell, with Stanley Reed, in London, Joseph Weber in Chicago, and Tom Lowry in New York


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