O'Reillys are making a big splash down under

IRISH INDUSTRY has been urged to turn its face towards Europe in recent years, but Tony O'Reilly's Independent Newspapers group has cast its eyes further afield in the search for profits.

From its financial and geographical base in Dublin, Independent has built a media empire in Australia and New Zealand spending almost 600 million Australian dollars (£280 million) to consolidate and diversify its base there. The recent acquisitions have been giving the group considerable comfort and there's more to come.

1995 was the year when O'Reilly really began to make the Australian investment community sit up and take notice. While Independent's subsidiary, Australian Provincial Newspapers (APN), has forged a satisfactory path since it was floated in 1992, its shock emergence as the nation's number two radio operator gained market recognition for the new kid on the block.

While Tony O'Reilly was mopping up the debris from his failed 1991 bid for the Fairfax media empire in a court settlement, his son Cameron was doing the type of deals which have become his father's trademark.

From being a solid one track newspaper publisher with a smattering of specialist magazines, APN has come to be viewed as something of a risk taker. Not only had it diversified into an unfashionable area in deals worth Aus$200 million, It had developed a toehold on the metropolitan markets which O'Reilly senior sought when his consortium made the multi billion dollar bid for Fairfax earlier in the decade.

The growth of Independent's interests in the region has been impressive, particularly given the nature and size of the market governed by the duopoly of Kerry Packer and Rupert Murdoch. From the modest investment a decade ago of Buspak - an outdoor advertising middleman which buys space on the sides of buses and rents it to advertisers - O'Reilly interests now control a large percentage of rural Australia's press and the biggest newspaper group in New Zealand.

Discounting Buspak, O'Reilly's first serious foray into the Australian market did not come until 1988 when Independent bought the then Queensland Provincial Newspapers (now APN) for Aus$130 million from Rupert Murdoch.

Since APN listed in mid 92 in an Aus$80 million flotation, its shares have more than doubled in value.

While diversifying into electronic media, APN has also consoldiated its core publishing businesses. The company has a monopoly in nearly all of its regional publications. The vastness of the country ensures one newspaper towns because of the logistics of distribution. APN claims 55 per cent readership in the markets in which it operates.

APN lifted net profit from the June half of 1995 by 27 per cent to Aus$10.28million. The full year earnings forecasts is expected to reach Aus$25 million.

Cameron O'Reilly says the diversification into radio is a natural extension and the APN board obviously agrees. After outlaying $200 million, O'Reilly sought to ease the company's gearing by off loading 50 per cent to Texas based Clear Channel Communications for $100 million.

This combined with a $30 million share placement in April, takes the company's gearing to around 65 per cent with interest cover of between three and four times. The radio acquisitions give APN a virtual monopoly on the over 40's listener - a segment of the market which O'Reilly hopes will attract advertisers.

It was not the first deal by O'Reilly junior. He first dipped his toes with the $11 million purchase of the specialist magazine publisher, Melbourne based Peter Isaacson Publishing in December 1994 The deal added more than 40 specialist periodicals to the APN stable and an entree into the Melbourne market.

Six months ago he followed this UD with the 55 per cent purchase of the Melbourne Times which it combined with two of Isaacson's titles, Southern Cross and Emerald Hill Times, to give the group a high profile among the city's AB reader profile. O'Reilly says he plans to use the specialist publications to gain a foothold in the Asian markets and APN has signed a small joint venture deal with Singapore based Minnis Business Press as the first step into this burgeoning region.

Interest in Asia remains on the long finger, however, as the group pulled off its second major coup in 12 months. This time it was the purchase of a controlling stake in New Zealand's biggest circulation media group, Wilson & Horton, publisher of the New Zealand Herald, eight provincial titles and several magazines.

After an initial investment of 293 million New Zealand dollars for a 28.3 per cent stake, the company has lifted its stake to around NZ$400 million. Unremarkably, the company has a distinct Independent/ APN flavour with Tony O'Reilly, Cameron and Liam Healy all on the Wilson & Horton board.

Wilson & Horton reported a 13.2 per cent rise in interim net profit to NZ$24.2 million for the six months to September and expects earnings before interest and tax of over NZ$100 million for the 1996 financial year.

To dovetail with its Kiwi press acquisition, APN is also understood to be looking at a possible bid for Radio New Zealand, the RTE equivalent which the government has recently put up for sale. Speculation has intensified given the Wilson & Horton I deal and the New Zealand government's 4 practical abolition of the rules governing foreign media ownership.

The Independent group is shrewd about divulging likely future strategy, but it would be reasonable to expect more acquisitions. It is difficult to see where it could go in Australia, however, given the tough laws on cross media ownership and the paucity of possible purchases likely to become available.

APN has already had talks with giant US cable operator, United International Holdings, which has secured microwave licences for many regional centres. In Ireland, Independent operates a joint venture microwave pay TV operation with UIH.

It is expected that the rules governing cross media ownership and foreign shareholdings in Australia's media will change after the general election forecast for April. While this could present Independent with more opportunities to extend its interests, it could also allow the two bigger fish, Kerry Packer and Rupert Murdoch, to turn their attention to purchases hitherto denied to them.

Thus far neither has done anything to prevent APN's run because the crossownership legislation has left them out of the running. Were this to be relaxed, it is doubtful that APN will continue to enjoy the free rein that has allowed the build up of the past two years.