Restructuring loans integral to reviving fortunes at INM

Talks with lenders are progressing but Denis O’Brien may have to inject cash

It was a busy weekend for Independent News Media, with the Irish company agreeing the sale of its South African newspapers for two billion rand and forcing the resignation of the five key board members at its Australian associate APN.

In Sydney, INM had made clear last week to APN’s executives and board that it would not support a rights issue. The Irish media group has not got the free cash to follow its money at APN.

Backing from fund manager Allen Gray gave them a combined 51 per cent blocking stake and ensured the capital raising wouldn’t happen.

APN’s chief executive Brett Chenoweth and other directors had little choice but to go.

Businessman Denis O’Brien is clearly in the driving seat in determining INM’s future. Questions have been asked as to whether, after years of agitation against previous management, the O’Brien camp actually has a plan to turn around the fortunes of the media company. Since the agm on June 8th, INM’s share price has declined by 88 per cent. Poor share performance was one of O’Brien’s biggest criticisms of the O’Reilly stewardship of INM.

Sources close to the company say this is only one indication of performance. A number of cost-cutting measures have been implemented over the past nine months. About 50 staff have left via redundancies.

The Irish Daily Star, in which INM is a 50 per cent shareholder, is being relocated from Dundrum to the group’s Talbot Street head office with many of its activities integrated with the Sunday World.

Its office in London has been closed along with its former corporate HQ in Citywest. Integration between the Evening Herald and the Irish Independent is planned and there will be more redundancies.

The big ticket item has been the sale of South Africa. The deal is worth about €168 million to INM. This is below the €250 million touted some months back and reflects a weak economic environment in that country. The weak rand has cost it about 10 per cent in euro terms.

Selling the South African interests will reduce net debt to about €244 million, according to NCB. However, it will not change the multiple of net debt to earnings before interest, taxes, depreciation, and amortization, which remains well above the medium term target of under three times.

For that to be reached, INM will need to agree a restructuring of its loans. Talks with lenders are said to be constructive and progressing.

Some clarity should be provided by the time of its full-year results at the end of March. It’s a matter of what haircut the lenders are willing to take and the price they will extract in return.

It might also involve shareholders – primarily O’Brien – being asked to pony up some cash. There is also the issue or its pension deficit, thought to be €130 million-plus.

Clearly the next six months will be crucial in deciding INM’s future.