When Jim Mullen stood down as the boss of bookmaker Ladbrokes, he enrolled in a Harvard course once taught by football manager Sir Alex Ferguson. It may serve him well now he is running Reach, the UK’s largest publisher of local newspapers. Because, with the clock ticking down on this unrewarded activity, he needs a last-minute winner in what Manchester United fans used to call “Fergie-time”.
That winner, Mr Mullen thinks, may be a deal to buy the 200 or so regional titles of JPI Media, which include The Scotsman and the Yorkshire Post. Reports suggest Reach has taken the lead late on in proceedings, putting it ahead of Belgium’s Mediahuis, National World and Archant. It is, arguably, a last chance for the group to grab more scale in its local news business, which was built up through a £45m purchase of The Guardian’s 31 regional papers — among them the Manchester Evening News — plus a £220m acquisition of Local World, which added another 83.
And scale is the only goal worth pursuing in this game — as it is the only way to achieve the cost cuts and digital revenues needed to stay profitable.
Cost cuts can be quickly achieved by centralising roles, in both advertising and editorial functions. As one insider puts it: “In sports news . . . when they write on a game, it can appear in multiple titles.” Reach’s national newspapers provide further opportunities for savings, and proof that the synergies can be substantial. Integrating the recently acquired Express and Star titles has delivered £15m of annualised savings this year, which rises to £22m in 2020. For a business that has total costs of £290m, that has helped to widen its operating margin — to 20 per cent in 2019 — and achieve £58m of pre-tax profit.
Digital revenues can be increased faster than the current 10 per cent by adding more readers and make money out of them more effectively. As Reach advertising salespeople are doubtless quick to mention, it is ranked fifth in some league tables for UK website visits — after Google, Facebook, Amazon, and the BBC. Mr Mullen will not be short of tactics for serving these viewers multichannel advertising or, as marketing website The Drum suggests, creating a “gambling vertical” by adding a betting service to its sports coverage. He worked at ad agency Leo Burnett and News International, which offers the Sunbet service, before Ladbrokes.
However, the danger is that Reach misses this last chance by going at it too hard. A strategy of grabbing scale, pushing for synergies, and stretching for the last margins risks bringing great newspapers down — not pushing reader numbers up. Some industry watchers cite the example of Digital First Media in the US, which has been accused of killing highly valued local papers — among them Pulitzer Prize winners — in pursuit of a quick win.
Reach needs to maintain quality to keep readers onside. There is no point in talking up your winning margin if no one is reading the Manchester Evening News. Just ask Fergie.
GVC: an each-way bet?
Bookmakers probably did not take much money on the Sid Hooper Handicap Chase at Chepstow, on April 6. Probably because, as the runners were being announced, most punters were distracted by a glitzier Handicap Chase at Aintree. Called The Grand National. Gambling group GVC will know how Chepstow’s turf accountants felt. On Wednesday, while it was announcing a third profit upgrade since May, many were focusing on rival Flutter’s £8.7bn bid for Stars Group.
Analysts at broker Peel Hunt were certainly looking elsewhere when GVC’s trading update came out. They seemed more interested in whether GVC might use the Flutter bid as a way of evaluating competition concerns, before launching a bid of its own. Or have Flutter be the “stalking horse”, as the FT Alphaville blog put it.
Analysts at Jefferies thought GVC worth a wager in its own right, though, because it looks more favourably priced than Flutter, on an enterprise value of 8.3 times earnings before nasties, compared with Flutter’s 11.4 — despite less leverage, less exposure to unregulated markets and similar revenue growth. Either way, then, GVC looks well placed. Or a good each way bet, as this column might put it.
BHP: Not in mine name
Standard Life Aberdeen, one of the biggest backers of BHP, says it will back a shareholder vote to suspend the miner’s membership of fossil fuel lobby groups, writes Kate Burgess. But lobbyists, love’em or leave’em as Lombard does, are there to rally support for the much-vilified extractive industry. And it is understandable if BHP, which is the biggest listed miner in the world, seeks to win all the supporters it can.
A clearer message of investor distaste for the mining industry would surely be to sell shares and withdraw capital. It is hard to justify putting clients’ money into a business if you don’t believe in it.