Gannett secures Herald newspapers with £215m bid

Gannett, the owner of Newsquest regional newspaper group, was last night close to securing the acquisition of the newspaper business of Scottish Media Group.

An agreement between the two sides is expected to be announced next week, after Gannett raised its bid by £5m to £215m for the titles, which include the Glasgow-based The Herald and The Sunday Herald.

The deal brings to an end a fierce bidding process, which also involved the Barclay brothers and Independent News & Media, publisher of The Independent and The Independent on Sunday.

Gannett, which also publishes USA Today, is thought to have decided to increase its offer because it felt it missed out in two recent major bidding wars in the newspaper industry. Regional Independent Media went to Johnston Press for £560m and the Belfast Telegraph was acquired by Independent News & Media.

SMG generated a lot of interest in its publishing business, as proprietors were particularly keen to gain control of The Herald, one of Scotland's two influential daily broadsheets.

But some in the City believe Gannett has overpaid for SMG's newspaper interests. Reports were circulating last week that bidders were considering lowering their offers as The Herald has been struggling in recent months because of the downturn in the advertising market and because of increased competition in the Scottish market.

The cost savings Gannett can make by acquiring the Scottish papers are also not thought to be extensive.

SMG decided two weeks ago to exclude the Barclay brothers from the final round of bidding, after their bid provoked anger across Scotland because they already own the country's three other national papers – The Scotsman, Edinburgh Evening News and Scotland on Sunday.

The Barclay brothers were thought to have made the highest bid, at around £230m. It has now emerged that in fact the businessmen offered in the region of £210m.

SMG rejected this bid amid fears regulators would block a deal that concentrated so many titles under one owner. The Herald staff were also vehemently opposed to a takeover by the Barclays and Andrew Neil, the publisher of The Scotsman publications. SMG's decision will disappoint the Barclays who had hoped to extract annual savings of between £10m and £15m through cost-savings by combining operations in Edinburgh and Glasgow.

Independent News & Media, which made it through to the final round of negotiations, also offered £210m and hoped to make savings by combining some costs incurred by its London and Belfast operations.

Other bidders included Permira, the venture capital group which had recruited Stephen Hill, the former chief executive of the Financial Times, to co-ordinate an offer.

Norwich-based Archant, the UK's sixth largest regional newspaper group, was also in the running.