BREAKINGVIEWS-Telegraph’s $675 mln price tag merits a fact check

By Jennifer Johnson

LONDON, May 23 (Reuters Breakingviews) - After what can charitably be described as a protracted sale process, the Telegraph has some good news: it has finally found an owner. The less-good news: that owner is U.S. investor RedBird Capital Partners, part of a joint venture which since 2023 has effectively controlled the UK media group anyway. While this ends the so-called auction from hell, it hardly proves beyond doubt that the broadsheet is worth the 500 million pounds ($675 million) RedBird claims.

The Telegraph has been in limbo since the UK’s last government moved to limit foreign-state ownership of domestic media outlets. RedBird IMI, a tie-up between the New York-based group and Abu Dhabi’s International Media Investments, was then in the process of acquiring the right-leaning paper. The partners had already repaid a debt owed by the Telegraph’s then-owners, the Barclay family, to Lloyds Bank – including a 600 million pound loan secured against the broadsheet and the Spectator magazine.

The government’s foreign ownership ban upended RedBird’s plans – it found itself having to downplay its Gulf riches and needing buyers willing to fork out 600 million pounds to recoup its outlay. Yet until the Telegraph sale, things were going tolerably well. Hedge fund boss Paul Marshall scooped up the Spectator for 100 million pounds, or around 50 times its projected EBITDA. And the UK may now let overseas groups like IMI own 15% stakes in media groups.

Unfortunately, it’s long since been clear 500 million pounds is toppy for the Telegraph. Numerous suitors were flagged, including former Chancellor Nadhim Zahawi, Chelsea soccer club owner Todd Boehly and Dovid Efune, owner of the New York Sun. But they all seem to have decided that it’s worth somewhat less.

No wonder. RedBird’s 500 million pound valuation is around 8 times the Telegraph’s 2023 EBITDA of around 60 million pounds. That’s way off the 17 times sported by The New York Times NYT.N, the $9 billion U.S. print title that has managed to build a thriving digital brand. It’s more like $320 million Reach RCH.L, the struggling owner of the UK’s Daily Mirror newspaper, which trades at less than 3 times EBITDA.

The Telegraph, which needs greater digital revenues to offset the threat of shrinking print circulation, may bear closer resemblance to its UK peer than the U.S. media giant. RedBird might be able to provide some basis for a steeper valuation by souping it up for the U.S. market, but that’s pricey and notoriously hard to do. And to have a majority stake, the new owner implicitly either needs to divert substantial cash to IMI, or find other investors that want to. Identifying ones that also agree that the Telegraph is worth 500 million pounds looks a tall order.

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CONTEXT NEWS

RedBird Capital Partners has reached an agreement in principle to acquire the Telegraph newspaper at an enterprise value of 500 million pounds. The U.S. investment manager teamed up with Abu Dhabi’s IMI to buy the broadsheet and the Spectator magazine in 2023. However, the UK government subsequently moved to limit foreign state investment in British newspapers, forcing the partners to put the assets up for sale.

RedBird provided a quarter of the funding for the initial deal but will now become the Telegraph’s sole controlling owner. The group said in a statement that it is involved in ongoing talks with potential UK-based minority investors.

The current government also announced last week that it will allow foreign state-backed entities to own up to 15% of British newspapers.