Sale of APN would be a painful way to clean up balance sheet

Disposal would provide some much-needed resources, given the possibility of a takeover battle for INM

ANY SALE of Independent News Media's (INM) stake in Sydney-based APN would mark major retrenchment by a business that has been fighting a sharp slide in its share price and which faces the threat of further attacks from "dissident" investor Denis O'Brien, who holds 26 per cent of the firm.

Such a move may well be unpalatable for Sir Anthony O'Reilly, whose international expansion of the company started in earnest when it entered the Australian market in 1988.

But it could provide a platform for him to put the company's dividend back on a growth trajectory, even in the face of sustained pressure on advertising in many of its core markets. If the move achieves that - albeit at the hefty price of selling INM's biggest international investment in poor market conditions - it would provide a double cushion for Sir Anthony.

Not only would it help him maintain his own lucrative dividend stream from INM. The elimination of some €800 million of APN debt which rests on INM's balance sheet would also provide support for INM's share price, on which much of his personal wealth rests.

This is crucial given the possibility of a takeover battle for INM with O'Brien and doubly important in light of the weakness of Waterford Wedgwood, the ailing luxury goods company in which Sir Anthony shares a major interest with his brother-in-law.

"Market concerns recently have been heavily focused on the degree of leverage/gearing in businesses. A disposal of APN and the resulting deconsolidation of its debt would lower INM's group debt to well below €600 million from €1.4 billion, while having a relatively modest impact on prospective earnings," said John Sheehan of NCB Stockbrokers.

Some rebasing of the dividend is a "distinct possibility", he added. Implicit in that, however, is the possibility of increasing the dividend from the rebased level over time.O'Brien, who has long sought the sale of the loss-making Independent in London, said the company's forecast of lower profits made "grim reading".

Estimated to be sitting on a paper loss of some €350 million on his INM stake, he said he found it hard to understand why the firm was considering the sale of one of its "best performing assets" in a falling market. "I, like all shareholders, shall be watching closely to see what valuation can be achieved for this attractive asset."

There was no comment on his remarks from INM's spokesman. Asked if O'Brien's stake could block a sale of APN, he said: "If shareholder approval is necessary, it would require a simple majority."

It remains to be seen what price INM fetches for APN. As economic pressure takes its toll on INM, this move suggests Sir Anthony remains very determined to stay in the game. He will be a big beneficiary of a cleaner balance sheet in INM.