If, by the time you read this, Scottish Media Group has not been
bought by Granada, there might be a lot of very worried people in
Glasgow. According to many sources north of the border, SMG has gambled
on doing a deal by Christmas and, though it has been playing a game of
boldly inspired brinkmanship, the end of the runway is approaching with
alarming speed. SMG must publish interim financial results in December
and there is widespread speculation that the figures might not be
universally good news which could give a whole new angle to the group’s
strategy.
When both SMG and its fellow Caledonian media owner, Scottish Radio
Holdings, began acquiring properties south of the border earlier this
year, it was portrayed as a romantic adventure - the first invasion from
the north since 1745 and that business with Bonnie Prince Charlie. These
were surely companies that embodied the self-confidence of a new
political era: in the post-devolution environment, with a parliament
sitting in Edinburgh for the first time in almost 300 years, Scottish
companies could take on the world. Or at least the rest of Britain.
The real story - almost certainly in the case of SMG and perhaps also
where SRH is concerned - is less sentimental. For SMG, it all started at
the beginning of the year with speculation that the Mirror Group was
about to sell its long-held 18.6 per cent shareholding in SMG as part of
a new rationalisation strategy. Many believed that Granada would not
only purchase the Mirror stake but move on the whole company. One way or
another, SMG was now ’in play’.
When the independence of high-profile Scottish companies is threatened,
the customary response is to unfurl the standard and march up and down
playing the bagpipes while aiming obscene gestures in a southerly
direction.
Sure enough, back in March, a matter of days before Granada moved in to
snap up the Mirror stake for pounds 110 million, SMG’s chief executive,
Andrew Flanagan, delivered a polite warning. ’Takeover speculation comes
and goes and we are still here,’ he stated. ’We will defend our position
robustly and anyone that wants to bid for us will have to pay a very,
very full price.’
He also announced that he intended to be a buyer rather than a seller,
having amassed a pounds 300 million acquisitions ’war chest’, and that
he would accelerate the diversification policy begun with the pounds 35
million purchase of the outdoor contractor, Primesight, in February. He
had a few months’ grace, Granada having given assurances that it would
make no further move on SMG until September.
On April Fool’s Day, the spending spree got back into gear with the
pounds 5.7 million purchase of the Scottish outdoor company, Baillie,
followed in June with the pounds 22 million acquisition of the cinema ad
sales house, Pearl and Dean. At this point, the City was offering two
(by no means mutually exclusive) readings of SMG strategy.
The first was that, in a time of low inflation, a company which has
grown as large as it possibly can in a mature home market can only seek
to deliver growth by ’international’ acquisition. The other
interpretation was that SMG was in classic defensive mode - making
itself too diversified and cumbersome for a TV-focused operation like
Granada to take on.
Still, many believed that Granada would at the very least up its stake
in September - and some believed that SMG was now all too ready to
sell.
But by the end of August, the call still hadn’t come. On 2 September,
SMG upped the ante, announcing that it was prepared to pay up to pounds
130 million to take control of GMTV, the ITV breakfast- time broadcaster
in which it already has a 20 per cent stake, as do both Granada and
Carlton.
In short, a Scotty dog among the pigeons.
Sara Maclean, the media director of Faulds in Edinburgh, is in no doubt
at all about the signals this sends out. She says: ’SMG initially had
all these ideas about what a nice big fat media company they could
become.
Then they started asking themselves if there wasn’t a quicker way to
make their zillions. And of course there is - by selling out. If you’re
selling out, the thing to do is to hike your sales price as high as you
can and the best way of doing that is through buying lots of
companies.
’But look at what they’ve bought - none of them is in any way a leading
company in its field. The problem is that City analysts know more about
pork bellies than they do about media companies and the strategy has
been successful in building the SMG share price. Granada knows there may
be some disappointing year end figures coming in but, in tabling a GMTV
bid, SMG is telling Granada, ’buy us now or we’ll be out of your
reach.’’
It is a genuine threat. Granada could not swallow both STV/Grampian and
GMTV because it would contravene government rules on concentration of
ownership - Granada would have too great a share of total UK terrestrial
television revenue and would have to sell GMTV at great inconvenience
and cost. But there is no doubt whatsoever that Granada wants the
Scottish ITV stations, even though they only account for 6 per cent of
total ITV revenue. With Granada already controlling the whole of the
north of England, geographical uniformity is at stake here and Granada
certainly wants to underline its position as the most powerful ITV
player. It’s a finely balanced situation. If the SMG strategy is to sell
- and sell at the highest price possible - this is pretty cool
brinkmanship. Of course, not everyone believes that this is the SMG
strategy. Graham Milne, the managing director of CIA Medianetwork’s
Edinburgh office, says he has been swayed by recent statements from
SMG’s Andrew Flanagan that the company’s long-term ambition is to be a
’strong British media company based in Glasgow’. Milne says - and hopes
in his heart - that a sale is not inevitable.
He points in particular to the company’s launch in February of a Sunday
broadsheet sister to its Herald newspaper. The title has struggled to
meet its circulation targets and has benefited from considerable
investment.
’Is that the action of a company just fattening up the calf before
selling?’ Milne asks. However, even he admits that he ’can’t see SMG
staying as it is forever’.
Critics who insist that SMG’s strategy smacks of short-termism point to
the way it has managed its outdoor acquisitions. Nigel Mansell, the
managing director of the outdoor specialist, Concord, states: ’With both
Primesight and Baillie there was much talk about investment but, apart
from a few changes in management personnel, there has been little
evidence of further activity from SMG. There was also a lot of talk
about a one-stop-shop for Scotland but that didn’t really impress anyone
- and how does Primesight fit into that in any case? Compare all of this
with what SRH has done.’
Indeed. SRH, a local publisher and radio contractor with franchises in
Scotland and Northern Ireland, has attracted plaudits for the way it has
systematically bought up regional poster companies - the Scottish
contractor, Trainer, for pounds 27.5 million in March; Bristol-based
Parkin for pounds 8.9 million in April; Birmingham-based Vision for
pounds 15.4 million in May; and Manchester-based Signways for pounds
4.15 million in September - and restructured them into a new company
called Score Outdoor. The company is run by Chris Trainer and senior
roles have been found for the most able managers from the acquired
companies. Observers have been impressed with the results.
SRH may not stay independent forever - and Clear Channel International,
which owns a similar mix of radio and outdoor interests in the US, has
already expressed a desire to acquire a stake in the company - but the
market believes that the company has a viable short-to-medium-term
strategy.
It is far less convinced about SMG. Many in the City believe Granada
will call SMG’s bluff and hold out in the hope that the SMG share price
will slide; yet others point to the fact that it ’indemnified’ Mirror
Group for a year - if a large chunk of SMG shares is traded at a price
above that paid initially by Granada (900 pence), it must pay the
difference to Mirror Group. Lorna Tilbian, a media analyst with West LB
Panmure, predicts a sale some time after the indemnification period is
up in March.
She says: ’Despite valiant efforts to stay the executioner’s hand, the
die is now cast. In its desperation to expand, SMG has been forced to
buy into areas that are neither akin geographically nor in its existing
core business areas. And given the poor recent performance of the
outdoor market, buying Primesight at the top of the cycle was probably
none too clever.’
But is it as simple as that? What about bagpipes, rude gestures and the
political dimension? The advertising community in Scotland appears split
right down the middle on this one, and the market is alive with
conspiracy theories. Some argue that a Granada takeover will not change
by one iota the television market dominance enjoyed by STV/Grampian
north of the border. One source reckons that a takeover by Granada could
actually be an improvement, stating: ’SMG has already ended Grampian’s
existence in production terms and it has moved all the production it can
down to London. SMG has done absolutely nothing for the Scottish media
industry. If Granada came in, it would be asked to make promises that
would be worth ten times what SMG has done for the industry here.’
Conspiracy theorists believe that SMG has already smoothed the political
path to a sale. Its chairman up until this summer was the Transport
Minister, Lord Macdonald of Tradeston, formerly known as simply Gus
Macdonald, a man whose first media success came as a producer of
Granada’s World in Action. Macdonald ensured that powers over media
matters were not devolved to the new Scottish Parliament and it is
assumed by some that he will guarantee the silence of the Scottish
Labour Party - both in Edinburgh and London - if the sale goes through.
The issue certainly won’t be covered by STV, which has a dominant share
of mind north of the border. You won’t find it in the Herald’s
editorials either.
A stitch up? Well, perhaps Milne does not agree with any of the above -
and he is not alone. He says: ’There are good business reasons why I
don’t believe a Granada takeover would be a good idea. For instance if
it started selling a north British macro region, that would push up the
price of airtime in Scotland. And what would happen to the Herald
newspapers?
They would be sold on by Granada, which has no interest in
publishing.
But who to? That also is a worry. Granada would strip out all of the
senior management functions which would make it hard for people north of
the border to have the best possible access to decision-making.
’But it also comes down to the fact that we like to believe we are
capable of running our own media, marketing and advertising business in
Scotland.
There will be a lot of people who would not be at all happy about a
Granada takeover and the fact that they would have no political say via
(the Scottish) Parliament will just make them shout all the louder.’
SCOTTISH MEDIA GROUP
Formed when STV acquired Caledonian Publishing in 1996
ITV franchises: Scottish Television, Grampian Television (acquired for
pounds 105 million in 1997), S2 (digital channel, Scotland’s equivalent
of ITV2).
Newspapers: west of Scotland titles, The Herald (circulation 105,000),
the Sunday Herald (47,000) and the Evening Standard (122,000)
Outdoor: Primesight Advertising has 5,700 sites across the UK, mainly
backlit 6-sheets; Baillie has 357 48-sheet sites and 367 6-sheet sites
in Scotland.
Cinema: Pearl and Dean, which commands 30 per cent of UK cinema screens,
25 per cent of cinema ad revenue.
Leisure: 20 per cent stake (acquired in September) in Heart of
Midlothian Football Club.
Magazines: Through subsidiary Caledonian Magazines. Titles include The
Home Show.
New Media: Internet publishing through Delphic Interactive.
SCOTTISH RADIO HOLDINGS
Commercial radio franchises: Radio Forth, Radio Tay, Radio Clyde,
Northsound, Moray Firth Radio, Radio Borders, Westsound, Downtown.
Outdoor: Score Outdoor is a new operating company merging the interests
of the Trainer, Vision, Parkin and Signways regional posters contractors
which were purchased this year.
Publishing: Score Press owns 33 local newspapers in Scotland and Ireland
run under separate divisions, including: Montrose Review, Bute
Newspapers and The Black Country Bugle. The Leitrim Observer Group,
bought for 860,000, was added in October.
