Dublin based Independent News & Media is, from recent news accounts, a teetering financial house of cards. It is a media conglomerate  financed by a mountain of debt in an industry that nobody wants.

Regarding the newspaper industry, Warren Buffett said for most papers in the U.S., he wouldn’t buy them "at any price." Prophetic words indeed. 

IN&M ran into danger recently of being no longer being listed as a going concern by its accountants had it missed renegotiating its current due debt of E200m. A rearrangement of management (Tony O’Reilly 'retired') and the injection of majority shareholder cash got the group an extension of a debt repayment deadline until the end of June. Subsequent negotiations have extended this deadline further in return for the creditors receiving 10% of the company’s assets; whatever those assets may be.

We have seen this chasing of debt before in one of O’Reilly’s other ventures – Waterford Wedgewood. O'Reilly dumped E400 million of his own and his in-laws cash into the company in an attempt to save what turned out to be the pottery and crystal industry’s Titanic. He shouldn’t have bothered; the company sank like a rock; his and his families cash along with it. The employees, for the most part, are out of a job and are fighting to get their pensions from an insolvent fund.

IN&M is generously valued at $1.5 billion and its debt is reportedly $1.4 billion. A slight revaluation and the company can be viewed as bankrupt. Given the current economic climate perhaps a reevaluation of asset value is called for which could  result in the company being wound up. Orderly liquidation now may help the most important assets of the company; the employees.

As it is now, the finances of the company are in essence a wash; a change in the attitude of creditors could nudge this company into liquidation in a heartbeat. Of course the creditors will end up holding the bag so they're in no hurry to pull the plug; yet. There is still over E1 billion in debt due in the next two years.

The majority shareholders hope that their injections of cash will boost creditor confidence and to some degree it has. Confidence for what one must ask? Newspapers are a dying industry; the media road is littered with the gasping remnants of some of the world’s former stars. What former value newspapers had in sales and advertising revenues is now governed by electronic media giants such as Google.

There is no longer a need for a large editorial staff – some of the best online publications are published with minimal cost and staff, at a fraction of traditional levels; the one you’re reading, the ButlerReport.com, included. Indeed one of the top players in the online news delivery business with 8 billion page views last year, Matt Drudge, has three staff members including him.

Desperate to cut costs, the IN&M is offering 500 Irish editorial and other staff unpaid ‘leave’ for six months. ‘Unpaid Leave’, so that’s what they call layoffs nowadays. I don’t see staff streaming back to their desks en masse in mid-December in time for Christmas; do you?

IN&M’s attempts to sell assets has had nobody biting. Why should they? They can smell blood in the water. They just have to wait and see what happens when the next pile of debt is due – E500 million. Should the company fail to meet that deadline and the creditors tip the company into liquidation, potential purchasers can pick and choose what they want.

Aggressive trimming of costs was the order of the day two years ago. Trimming now is an act of desperation. The future in media, in news production, is all online; as predicted years ago to those who would listen. It is an evolved model that has as much resemblance to the old as a modern automobile has to the 1964 Buick Skylark.

One can only hope that Mr. O’Reilly didn’t back up his – one can’t call borrowing this much money to fund acquisitions an investment – debt arrangements with that king-killer; the personal guarantee.

Sources:

1. Irish Times: Bondholders to receive 10% of IN&M asset sales
http://www.irishtimes.com/newspaper/finance/2009/0613/1224248766838.html

2. CNBC: IN&M bondholders to get 10% of asset sales-paper
http://www.cnbc.com/id/31339220

3. MediaHack: Independent Newspapers to cut 20% editorial staff
http://www.mediahack.co.za/content/?p=46

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