Montgomery faces fresh challenge with Norwegian deal

Considering his reputation as a formidable cost-cutter, David Montgomery is surprisingly soft-spoken.

Within UK newspaper circles, his name is still associated with his rocky stewardship of the Mirror Group and the Independent, where he regularly crossed swords with the editors. Yet his light Ulster lilt, as he sips water in his offices in Piccadilly, central London, makes it hard to imagine him operating with "a merciless savagery", in the words of one critic.

The personal intensity still occasionally breaks through, but people close to Mr Montgomery say he has "mellowed". Since his acrimonious departure from the Mirror Group in the late 1990s, Mr Montgomery has reinvented himself as a deal-maker, advising private equity groups on acquisitions of media assets. He is about to become head of a pan-European newspaper company, as Mecom, his Aim-listed investment vehicle, completes its acquisition of Orkla Media, the media division of the Norwegian conglomerate. The group will be bigger than some of the leading UK regional press groups since the €970 million transaction takes its market capitalisation to about £365m (€538 million), with sales of about €1.1 billion.

Ironically, Mr Montgomery, who famously fell out with the Mirror's institutional shareholders, now has such leading UK fund management groups as Fidelity, M&G, Jupiter and Morley at the top of Mecom's shareholder register.

They have been attracted by Mr Montgomery's promises of revenue growth through new products and margin improvement. Although Mecom has dabbled in UK-based investments, it has decided to focus on continental European newspapers, where assets are cheaper and the revenue base is more stable because there is less reliance on advertising.

His empire-building has not been without controversy. Norwegian politicians, like their German counterparts before them, decried the Orkla deal. Some journalists threatened to walk out.

But the dust seems to have settled and Mr Montgomery says he is getting on with the job. One discovery, he says, is that on mainland Europe there is less of an "us and them" culture between the management and the editorial sides than in the UK.

"Unions and staff want to be involved in the business in a way that secures its future," he says.

UK papers are leaner, meaner beasts compared with their continental counterparts. However, he says, "there is a limit to how far you can lift operating margins, because salaries on the continent are much higher". Cost cuts aimed at doubling margins will not hurt editorial quality, he says.

The main focus will be to try to cut administrative costs and change the structure of the organisations. Orkla, for example, has 40 companies in Denmark. "We are now making this into one. There will be massive savings which have nothing to with key editorial and advertising sales divisions," he says.

Mr Montgomery wants to lift revenues by adding products such as freesheets, magazines and online websites. He also wants to sell products such as wine and financial services, as The Sunday Times and Daily Telegraph do in the UK. With more than 90 per cent of sales of some of Orkla's newspapers coming from subscription, the titles have a special relationship with readers.

Although his reputation in the City of London has been restored and his shareholders are supportive, Mr Montgomery still has much to prove. Can he run a culturally diverse newspaper empire and also compete with the rapidly rising media offerings?

He answers that he has strong local products supported by strong local executives and journalists. He also says newspapers still have the greatest source of content that can travel across various media platforms.

He warns, however, that newspaper journalists must change. "[ They] face the biggest upheaval in media. You can't do nothing and stand still." Journalists will increasingly be involved in the commercial process. Editors of his Berlin titles have a strong say in the business side. "Editors need to be involved in the commercial side because of the rapid changes in media," he says.