MEDIA HEADLINER: SMG leader opts to cut debts and trim disparate interests

Jeremy Lee reports on the decision by SMG to sell off its newspaper businesses.

History has shown, having an ambitious Scottish accountant as the chief executive of an ITV franchise is not necessarily a recipe for commercial success.

While Granada, under Charles Allen, still flounders, Scottish Media Group's head bean counter turned chief executive, Andrew Flanagan, has found himself in a similar sticky situation.

Flanagan has recently announced that he is putting up for sale SMG's profitable regional publishing interests - comprising, among others, The Herald in Glasgow. Ostensibly the reason is that they are surplus to requirements and SMG can now concentrate on developing and exploiting its national media interests.

While there has been a flurry of enquiries from buyers interested in the publishing assets, there is another logic behind his reasoning, given the small matter of the company's £400 million debt and the fact that the publishing division may command a £200 million price tag.

This debt was accrued from a series of high profile and risky investments made at the height of the media boom, for which SMG is now paying the price.

As the market turned sour the value of Ginger Media Group, Pearl & Dean and Scottish Radio Holdings has slumped and SMG now finds itself having debts exceeding its market capitalisation.

So who's to blame for putting SMG in this precarious position? Well, the decision to expand the company to encompass various disparate media interests was very much Flanagan's. His predecessor, Lord MacDonald, had been content with running the company purely on its Scottish Television interests, which he jealousy guarded from any English interlopers.

But when MacDonald left to get involved in the even murkier world of politics, Flanagan stepped up a gear and went acquisition crazy, partly spurred on by events occurring at the other ITV companies.

"While Carlton and Granada were busy consolidating ITV, SMG was marginalised and did the only thing they could - try and get in to other markets," one source close to the company says.

While some applauded the braveness of this approach, there are others who see it as displaying a lack of real direction by the management and by Flanagan.

He was also criticised for the ruthless way he stripped down Grampian Television after its purchase in 1996, relegating it to little more than an Aberdeen outpost of STV's Glasgow headquarters.

And STV is no longer the production house for the ITV Network it once was - the majority of the networked programmes produced there now are obscure children's shows along the lines of Harry and the Wrinklies.

"It's turned into a fire sale. Flanagan bit off more than he could chew and SMG is just being broken up by stealth. He has run down so many dead ends it's the only thing left he can do," one source close to SMG says.

Flanagan, who was too busy touring the investors and explaining his actions to be interviewed, would no doubt disagree.

His spokesman - the corporate affairs director, Callum Spreng -claims that by disposing of its regional business SMG can concentrate on pursuing its cross-media strategies.

Again, some find this a little hard to swallow. After all, SMG's television interests are sold by Carlton and given the hotchpotch of outdoor and radio there doesn't seem to be much leverage on offer.

Also, cross-media selling is a nice idea in theory but in reality has spectacularly failed to take off with any real credibility.

Despite accusations, Spreng claims that this disposal isn't the beginning of a clearance sale and firmly scotched rumours that the two ITV franchises would be next. "We're committed to our TV interests," he claims.

Flanagan has been making the same noises - reportedly he even spoke of a vision of STV and Grampian making up a sort of Scottish ITV, separate from the rest of the network. Although this may appeal to the nationalist fervour currently running through Scotland, no-one seriously expects this to happen. Analysts expect that Flanagan is keeping his ITV licences as a ransom for the long-awaited consolidation of the network and then he can dispose of them at a premium price.

In the meantime, according to Alex de Groote, the media analyst at Credit Agricole, the City has reacted positively to the sale of SMG's publishing division with its share price jumping 15 per cent.

Given the nature of SMG's business and levels of its debt, few can see it either surviving as a going concern or being acquired as a job lot.

It seems unlikely therefore, thanks in part to the actions of Flanagan, that SMG will still be around in a few years time.

THE FLANAGAN FILE

1981: ITT Europe Inc, finance manager

1986: PA Consulting Group, finance director

1991: The BIS Group, group finance director

1994: SMG, group finance director

1996: SMG, managing director

1997: SMG, chief executive

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