LONDON (ShareCast) - The Daily Mail and General Trust (DGMT), owner of the Daily Mail, is to sell its regional newspaper arm to a new company led by newspaper veteran David Montgomery in a major shake-up of the newspaper market.

The media company will sell its Northcliffe Media arm for £52.5m to a new joint venture, Local World, which will also combine the regional newspaper assets of Iliffe News & Media. Part of the cash will go into DGMT’s group pension funds, with the remainder being used for acquisitions in line with DMGT's acquisition strategy.

DMGT will also receive 38.7% of the new media group for its 80 titles. The Iliffe family will take a 21.3% holding in return for their 36 titles, while rival newspaper publisher Trinity Mirror will pay £14.2m to take a 20% equity stake. It will not sell any titles to the new group.

The remaining Local World shares will be purchased by other investors including Artefact Group, an investment fund associated with Lord Ashcroft, and Odey Asset Management.

The intention is that Local World will become one of the UK's leading regional newspaper publishers, online content providers and local advertising platforms, with more than 107 print titles and 60 websites.

Local World will have an agreed enterprise valuation of circa £100m at completion. On a pro forma basis, Local World would have reported revenues of £273m and operating profit of £21m for the twelve months ended September 30th 2011, and would have had gross assets of £38m at that date.

Steve Auckland, currently Chief Executive of Northcliffe, will become Chief Executive Officer of Local World while the Chairman will be David Montgomery. Rachel Addison, Group Finance Director of Northcliffe, will assume the same role at the new company alongside a board of directors drawn from the main shareholders. The company will be chaired by David Montgomery.

For its part, Trinity Mirror expects the investment to be earnings enhancing in the first full year of investment.

Simon Fox, Chief Executive of Trinity Mirror, said: "Alongside our continued focus on the creation of 'One Trinity Mirror', our investment in Local World reinforces our commitment to local media and enables us to participate in a compelling business opportunity with the consolidation of two strong local media businesses.

"In addition, the investment builds on Trinity Mirror's existing commercial services for the provision of contract printing and national advertising sales to Northcliffe. We look forward to working with the Local World team."

Broker comment

Investec Analyst Steve Liechti, has a ‘buy’ on Daily Mail & General Trust with a price target of 578p.

He commented: “This is a net positive in our view, despite slight earnings per share dilution, given a probable boost in sentiment following further focus on business-to-business and is evidence that DMGT management is getting things done.”

CM

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