David Montgomery will buy The Mirror with financial backing from Orkla. That is, if we are to take today’s stories in Norwegian media to their logical conclusion and predict a future outcome. And it all started with a throwaway sentence by James Robinson in last week’s Observer…
Norwegian media is rife with speculations today that Orkla may back Montgomery’s Mecom if the company were to make a bid for Trinity Mirror, or parts of it such as The Mirror. On Wednesday (you know, The Observer can be a big paper to plow through and it does take a while for it to reach our distant shores) DN ran a story on how The Observer had said it was likely that Monty would make a bid for Trinity Mirror, or parts of it, and said English commentators believe this is Monty’s long term goal (though the article DN referred to was entitled “Candover eyes Mirror” and only mentioned Montgomery in the last sentence).
The Mecom-Orkla-Mirror theory gained further momentum when Dag J. Opedal, Orkla’s CEO, told DN that Orkla would be a “supportive shareholder” in Mecom Europe, after Opedal had presented Orkla’s solid second quarter earnings yesterday. He said Orkla “has faith in Mecom’s growth and development plans”, but refused to comment on future investments.
Not too convincing yet this Mecom-Orkla-Mirror theory, is it? Let’s do a small reality check. Okay, Orkla does have easy access to ‘cheap money’ and that Montgomery covets The Mirror is well known. However, if Montgomery wants to develop Orkla Media the way he says Mecom plans to, there are more pressing, and costly, decisions to be made elsewhere – and Orkla has indicated strongly that they want to reduce their involvement in, or even get out of, the media industry in order to focus on products such as energy and raw materials.
Looking at the newspaper portfolio that Montgomery now has agreed to buy, there are several challenges that will need to be solved as soon as possible, and they all require financial investment:
In addition to the newspapers that Orkla Media own fully, they hold various stakes in other newspapers. Several of these have expressed a wish to buy Montgomery out, and others are working towards a merger that would reduce Montgomery's stakes and influence further – which contradicts Mecom's expressed desire to obtain majority control. To prevent its influence from dwindling, Mecom's only option would be to buy more shares. Besides, Orkla Media's newspapers face the same challenge as all other newspaper across the world: the expensive transition from paper to digital and how to incorporate social media such as blogs, podcasts, vodcast and what have you.
A logical next move for Mecom would be entering into some kind of joint venture with Dagbladet, which I guess is as close as you could get to a Norwegian version of The Mirror, as Dagbladet itself has speculated might happen. If Mecom could pull that off, it would complement Orkla Media fantastically, add expertise on new media which Mecom lacks - and it would be a move Orkla Media employees, who are still hostile to Mecom's takeover, would applaud. Norwegian and Danish Orkla Media employees have run a very loud PR-campaign against Mecom, and Norwegian and Polish employees have said they refuse to take the hit for the bad financial state of Orkla Media's Danish holdings – with an average 3 per cent profit margin and a looming newspaper war it's going to require a lot of investment, and perhaps bloodshed, to bring the Danish newspapers up to the 15 per cent profit margin Montgomery has said he aims for for all Mecom newspapers.
So there are lots of issues, and some of them rather costly, to address before Montgomery can even think about buying Trinity Mirror, or parts of it. With an expected price tag more than double of what Mecom have to pay for Orkla Media, is it realistic that Mecom, who had to borrow money from Orkla to complete the Orkla Media deal, can find money to buy Trinity Mirror as well as meet the challenges presented by its Orkla Media portfolio? The AIM market is a good place to raise money for developing a company such as Mecom, but an acquisition the size of Trinity Mirror for a company built on borrowed money? I'm very doubtful that even Montgomery could work such wonders. Neither is he helped by the current state of the world economy, reeling from threats of war and terrorism.