City View - After the revolution: what next for The Independent?

The company itself is not aggressively marketing a stake sale, but one source close to the publication speculated that a stake sale could be the first sign that O’Reilly might be looking for a full-on exit. “It could be a jumping off point for a change of ownership,” said the source.

Other sources, however, had not even heard whispers of a 30% stake sale. “That caught me by surprise,” admitted another senior media deal-maker.

Another media banker pointed out that with IN&M recently selling off its UK-based regional press portfolio, The Independent could be viewed as a non-core asset.

It was previously reported by The Guardian that Gannett, Axel Springer, DMGT and Trinity Mirror could be potential bidders for the rumoured 30% stake.

Shane Mathews, an analyst at NCB stockbrokers, added that Richard Desmond, proprietor of Express newspapers, could be another candidate.

He was recently one of the guests at the Indie’s party to celebrate the first anniversary of its relaunch.

And another media banker noted that Hellman and Friedman (the private equity investor that owns a stake in Axel Springer) likes media assets, but the source did not elaborate on whether the investor would have any interest in The Independent . A capital infusion could make sense, said the same media banker.

While IN&M has recently been through a balance sheet restructuring, O’Reilly doesn’t have deep pockets to lavish on the publication, said a non banking source close to the title.

O’Reilly has always run the publication on a shoestring and tightly staffed, according to the source. So, a capital increase could help the newspaper sustain, and take advantage of, the recent circulation success, the source suggested.

Despite the chatter, nearly every source could not see the strength or logic in an imminent stake sale or even a looming change of ownership. “It doesn't make much sense,” Mathews said.

Banking and analyst sources also found it hard to see why a 30% stake – rumoured to be priced similar to the valuations achieved by the sale of The Daily Telegraph to the Barclay Brothers – would be attractive.

According to one banker, any stake sale would need preemption rights to entice potential trade buyers. And analysts don’t see The Independent churning out a profit before 2006, so any potential venture capital bidder would find it difficult to find the stable cash flows required to pay off leverage, said one of the media bankers.

The idea of O’Reilly selling out soon is unlikely, said a banking source.

According to the source, O’Reilly is proud of what has been achieved; and now that the newspaper looks likely to come back into profit, it is doubtful that he will want to offload the publication. The non-banking source close to The Independent also added that O’Reilly was much more loyal to The Independent than when he bought it a decade ago.

According to one analyst, there would not be much point selling now because the publication appeared to have reached a turning point in terms of circulation and potential profitability. “I don’t think these rumours have legs,” concluded the banker familiar with IN&M.

History has shown, however, the desire to own a national newspaper is not always predicated on making money.

“Whenever a newspaper comes up for sale, there’s always a limitless queue of parties willing to own it,” said the non-banking source close The Independent

The Independent factfile

• Independent Newspapers is a division of Independent News and Media UK, part of a global media and communications group with a turnover of G 1,341m which publishes newspapers and magazines in the UK, Ireland, New Zealand, Australia and South Africa.
• The Independent was launched in October 1986, The Independent on Sunday in 1990.
• Last September, The Independent launched a compact edition alongside the broadsheet on Monday to Friday.
• The Saturday Independent on 31 January 2004 again made history, becoming the first quality newspaper to be sold solely in the new compact size format. The weekday edition followed soon after. The Times followed suit last month.
• The Independent was awarded media brand of the year at the recent Media Week Awards.

By Ben Harrington