Observer deal will fuel paper war: Lonrho accepts an undisclosed offer from the Guardian for Britain's oldest Sunday

THE OWNERS of the Observer, Britain's oldest Sunday newspaper, have accepted an offer from the Guardian, giving the liberal daily a Sunday stablemate for the first time.

The deal, to be approved formally by the Observer board next Tuesday, ends a period of speculation in which the Guardian, the Independent and the Financial Times had all shown interest in the 202-year-old title.

Competition, already intense in the Sunday newspaper market since the Independent on Sunday's launch in January 1990, is certain to intensify. However, Observer staff were generally happy that the news ensured their paper would continue to be published in its present form. It will come under the control of the independent Scott Trust, owner of the Guardian.

No details of the Guardian's successful bid were being disclosed in advance of next Tuesday's board meeting. It is thought, however, that the deal involves a new company to publish the Observer in which both the Guardian and Lonrho would have shares, with the Guardian majority shareholder. The Guardian is thought to have paid pounds 6m up front and will sustain any losses for up to five years.

Journalists at the Observer accepted there would be some job losses - probably about a quarter of the 80-strong editorial staff - and a good many more from other departments.

Donald Trelford, Observer editor for 18 years, said yesterday that he would continue during a transition period, but pointedly did not speculate on his future after that. If a new editor comes from the Guardian's existing staff, two front runners would be Jonathan Fenby, deputy editor, and Alan Rusbridger, features editor.

While MPs welcomed the deal, the National Union of Journalists was more cautious. All newspaper deals of this size are subject to scrutiny by the Monopolies and Mergers Commission to ensure press competition is preserved. The MCC's procedures allow such newspaper investigations to take from two to three months.

The Observer, with sales of around 500,000 and annual losses of about pounds 9m, has been ailing for almost of a decade, failing to counter the expansion of the Sunday Times in the Eighties or inroads that the launch and growth of the Independent on Sunday have made into its traditional liberal and left-of-centre constituency.

It is understood there will be a few months' transition before the Guardian becomes the Observer's publisher. After that the Sunday's operation is likely to move to a building near the Guardian in Farringdon Road, Clerkenwell, the Guardian paying off the lease on the Observer's Battersea offices. Plans are for two newspapers with separate staffs rather than an integrated seven-day-a-week operation.

Yesterday Lonrho said it had received an offer from the Guardian and Manchester Evening News which it found acceptable, and upon which it had undertaken to consult the Observer board. 'The sale would also be subject to contract and all appropriate regulatory approvals,' it added.

Harry Roche, chairman and chief executive of the Guardian and Manchester Evening News, said: 'We are very pleased that the Lonrho board has accepted our offer to purchase the Observer and are to consult with the Observer board upon that offer.'

Ian Jack, editor of the Independent on Sunday, said yesterday: 'We wish the Guardian and the Observer well and look forward to the challenge ahead. The Independent on Sunday has achieved a great deal over the past two years, both in terms of circulation and reputation, in a very competitive market. We expect that progress to continue. The Observer will find us no easier to compete with in the future than it has in the past.'

'Independent' statement, page 2