The loss-making newspaper group chose to secure its future through risky financial wheeling and dealing. It should have taken the advice of its own columnistsby Peter Morris / August 24, 2010 / Leave a comment
Published in September 2010 issue of Prospect Magazine
“Securing the long-term future of the Guardian” was the headline on the cover of Guardian Media Group’s (GMG) 2008/09 annual report. Not long after, in March 2010, the group’s chief executive Carolyn McCall announced she was leaving after 24 years to become chief executive of easyJet. “A person close to Ms McCall… acknowledged that she was departing at a critical time, but said she and her board were confident that ‘the Guardian is secure, totally secure,'” reported the FT.
Was that the sound of someone protesting too much? What would it mean, anyway, for the Guardian to be “secure”? During the six years ending 31st March 2010, Guardian News & Media (GNM)—the subsidiary of GMG that publishes the Guardian and Observer—generated cash operating losses averaging £15m a year. Throw in capital expenditure and other investment, and the amount of cash it “burned” every year rises to £38m. Like all newspaper companies, GNM is suffering from falling sales and the effect of the internet on revenues. It has invested heavily in a highly regarded website, while taking a stand against charging for it. This decision has financial consequences. “Securing the long-term future of the Guardian” means plugging that annual gap, indefinitely (although annual losses are expected to reduce in size).
Yet starting in mid-2006, GMG chose an unconventional way of doing this. Over the course of two years, right at the top of the business cycle, it put more than half the Guardian’s “inheritance” (valued at around £1bn) into two risky leveraged buyouts (LBOs) in partnership with Apax, a leading private equity group, plus another £170m into other risky ventures. It makes for an uncomfortable juxtaposition. The Guardian, Britain’s leading liberal newspaper, has generally taken a strong stand against exotic financial engineering and been sceptical about private equity, yet all the while its parent, GMG, has been taking advantage of some edgy financial dealings to secure the newspaper’s future.