Tortoise Media lines up backers to deliver takeover of The Observer
One of the world’s most successful private equity chiefs is being lined up to help fund a takeover of The Observer, the world’s oldest Sunday newspaper.
Sky News has learnt that Patrick Healy, the chief executive of Hellman & Friedman (H&F), a US-based buyout firm, is among the Tortoise Media shareholders who are in talks to commit millions of pounds in a five-year investment plan for the title.
Talks about a deal between Guardian Media Group, The Observer’s owner for the last three decades, and Tortoise Media, a five-year-old start-up, have been ongoing for months.
They were disclosed publicly in September, and are believed to have weeks left to run before a formal agreement is reached.
The deal has sparked controversy among Guardian and Observer journalists, who argue that staff on the Sunday newspaper – which traces its roots back to 1791 – should be protected by the same safeguards as those provided to The Guardian by the Scott Trust.
Earlier this month, an open letter signed by leading figures from the arts and culture including Bill Nighy, Hugh Grant, Mary Beard and Ralph Fiennes labelled the prospective deal “disastrous”.
“While figures of £100m are being bid for other publications [a reference to the recent sale of The Spectator magazine], this poorly funded approach sets the value of the Observer at or near zero,” the letter said.
“The proposal also envisages moving it from a resilient and well-funded newspaper publisher to a small, loss-making digital start-up whose funding for the takeover would in all likelihood come from private equity.”
Mr Healy is not the only Tortoise Media shareholder keen to participate in its new funding round, with David Thomson, the chairman of Thomson Reuters and Woodbridge, his family office, also thought to be interested.
Both Mr Healy and Mr Thomson are already identified as minority investors in Tortoise Media’s share register.
Mr Healy has a long pedigree as an investor in the media industry through H&F, having overseen the firm’s interest in companies such as Fairfax Media in Australia and Axel Springer, the German media group which last year explored an offer for The Daily Telegraph.
In 2015, he worked on a potential bid for the Financial Times before losing out to Nikkei of Japan.
There was no indication this weekend about the scale of Mr Healy’s potential investment in Tortoise Media to fund the deal, although a person close to the start-up said its discussions with investors had not yet concluded.
Tortoise Media has pledged to invest £25m in The Observer over a five-year period, although it is unclear whether it is trying to raise the entire sum before the transaction completes.
The company was founded five years ago by James Harding, a former BBC executive and editor of The Times, and Matthew Barzun, the ex-US ambassador to Britain.
It specialises in what it calls “slow news”, providing analysis and commentary on major events.
Mr Harding is understood to be planning to meet senior Observer staff next week amid the threat of strike action against the deal with Tortoise Media.
In a statement issued last month after Sky News revealed the discussions, Anna Bateson, GMG’s chief executive, described the deal as “an exciting strategic opportunity for the Guardian Media Group”.
“It provides a chance to build the Observer’s future position with a significant investment and allow the Guardian to focus on its growth strategy to be more global, more digital and more reader-funded.”
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Katharine Viner, The Guardian’s editor-in-chief, said the development had “the potential to be a very positive thing for both the Observer and the Guardian”.
“My number one priority is a future in which both titles continue to thrive and deliver high-quality journalism to our readers,” she said.
“It is extremely important to me that the Observer, with its excellent journalistic reputation, loyal readership and heritage as the world’s oldest Sunday newspaper, is in good hands.”
Mr Harding has pledged to retain a print presence for The Observer, which was founded in 1791 by WS Bourne on the premise, according to an official history of the title, that “the establishment of a Sunday newspaper would obtain him a rapid fortune”.
Tortoise Media, which remains lossmaking, also counts Lansdowne Partners, a prominent Mayfair hedge fund, and LocalGlobe, a leading venture capital firm, among its investor.
“We think the Observer is one of the greatest names in news,” Mr Harding said last month.
“We will honour the values and standards set under the Guardian’s great stewardship and uphold the Observer’s uncompromising commitment to editorial independence, evidence-based reporting and journalistic integrity.
“George Orwell described the Observer as ‘the enemy of nonsense’; we’re excited to show readers, old and new, that it still is.”
This weekend, Tortoise Media and GMG declined to comment, while Mr Healy also declined to comment through a spokesman and Mr Thomson could not be reached for comment.
A former Conservative cabinet minister has thrown his hat into the ring to become the inaugural chair of Britain’s new independent football regulator.
Sky News has learnt that Chris Heaton-Harris, who stood down as an MP at July’s general election, is among those who applied for the role ahead of a deadline on Friday.
Mr Heaton-Harris is himself a qualified football referee who has officiated at matches for decades.
A former Northern Ireland secretary and chief whip under Rishi Sunak and Boris Johnson respectively, he said in 2022 of his part-time career as a football official: “I took a [refereeing] course and that was it, I’ve been going ever since.
“Football has done wonders for me throughout my life so I would recommend it to everybody.”
Mr Heaton-Harris is among a large number of people who have applied for the role of chair at the Independent Football Regulator (IFR), according to officials.
A publicly available timetable for the search says that interviews for the £130,000-a-year post will end on 11 December, with an appointment expected in the new year.
It is the second time that the government has embarked on a search for a chair for the IFR after an earlier hunt was curtailed by the general election.
The role will be based at the watchdog’s new headquarters in Manchester and will require a three-day-a-week commitment.
The Football Governance Bill had its second reading in the House of Lords this week, as part of a process that will represent the most fundamental shake-up in the oversight of English football in the game’s history.
The Labour administration has dropped a previous stipulation that the regulator should have regard to British foreign and trade policy when determining the appropriateness of a new club owner.
The IFR will monitor clubs’ adherence to rules requiring them to listen to fans’ views on issues including ticket pricing, while it may also have oversight of the parachute payments made to clubs in the years after their relegation from the Premier League.
The top flight has issued a statement expressing reservations about the regulator’s remit, while it has been broadly welcomed by the English Football League.
The IFR’s creation will come with the Premier League embroiled in a civil war over Manchester City‘s legal battles emanating from allegations that it breached the competition’s financial rules.
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Next week, the 20 Premier League clubs will meet for a lengthy shareholder meeting, with a vote on amended Associated Party Transaction rules hanging in the balance.
The league needs 14 clubs to vote in favour for the rule changes to be passed.
Contrary to earlier expectations, however, a detailed discussion on a financial distribution agreement between the Premier League and EFL is unlikely to be on the agenda.
A Department for Culture, Media and Sport spokesperson said: “The process for recruiting the Independent Football Regulator chair is under way but no appointment decisions have been made.
“We do not comment on speculation.”
This weekend, Mr Heaton-Harris could not be reached for comment.
Pizza Hut’s biggest UK franchisee has begun approaching potential bidders as it scrambles to mitigate the looming impact of tax hikes announced in last month’s Budget.
Sky News has learnt that Heart With Smart (HWS), which operates roughly 140 Pizza Hut dine-in restaurants, has instructed advisers to find a buyer or raise tens of millions of pounds in external funding.
City sources said this weekend that the process, which is being handled by Interpath Advisory, had got under way in recent days and was expected to result in a transaction taking place in the next few months.
HWS, which was previously called Pizza Hut Restaurants, employs about 3,000 people, making it one of the most significant businesses in Britain’s casual dining industry.
It is owned by a combination of Pricoa and the company’s management, led by chief executive Jens Hofma.
They led a management buyout reportedly worth £100m in 2018, with the business having previously owned by Rutland Partners, a private equity firm.
One source suggested that as well as the talks with external third parties, it remained possible that a financing solution could be reached with its existing backers.
HWS licenses the Pizza Hut name from Yum! Brands, the American food giant which also owns KFC.
Insiders suggested that the increases to the national living wage and employers’ national insurance contributions (NICs) unveiled by Rachel Reeves would add approximately £4m to HWS’s annual costs – equivalent to more than half of last year’s earnings before interest, tax, depreciation and amortisation.
One added that the Pizza Hut restaurants’ operation needed additional funding to mitigate the impact of the Budget and put the business on a sustainable financial footing.
The consequences of a failure to find a buyer or new investment were unclear on Saturday, although the emergence of the process comes amid increasingly bleak warnings from across the hospitality industry.
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Last weekend, Sky News revealed that a letter co-ordinated by the trade body UK Hospitality and signed by scores of industry chiefs – including Mr Hofma – told the chancellor that left unaddressed, her Budget tax hikes would result in job losses and business closures within a year.
It also said that the scope for pubs and restaurants to pass on the tax rises in the form of higher prices was limited because of weaker consumer spending power.
That was followed by a similar letter drafted by the British Retail Consortium this week which also warned of rising unemployment across the industry, underlining the Budget backlash from large swathes of the UK economy.
Even before the Budget, hospitality operators were feeling significant pressure, with TGI Fridays collapsing into administration before being sold to a consortium of Breal Capital and Calveton.
Sky News recently revealed that Pizza Express had hired investment bankers to advise on a debt refinancing.
HWS operates all of Pizza Hut’s dine-in restaurants in Britain, but has no involvement with its large number of delivery outlets, which are run by individual franchisees.
Accounts filed at Companies House for HWS4 for the period from 5 December 2022 to 3 December 2023 show that it completed a restructuring of its debt under which its lenders agreed to suspend repayments of some of its borrowings until November next year.
The terms of the same facilities were also extended to September 2027, while it also signed a new 10-year Pizza Hut franchise agreement with Yum Brands which expires in 2032.
“Whilst market conditions have improved noticeably since 2022, consumers remain challenged by higher-than-average levels of inflation, high mortgage costs and slow growth in the economy,” the accounts said.
It added: “The costs of business remain challenging.”
Pizza Hut opened its first UK restaurant in the early 1970s and expanded rapidly over the following 15 years.
In 2020, the company announced that it was closing dozens of restaurants, with the loss of hundreds of jobs, through a company voluntary arrangement (CVA).
At that time, it operated more than 240 sites across the UK.
Mr Hofma and Interpath both declined to comment.
The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).
However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the quarter.
The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.
Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.
And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.
Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” she said in response to the figures.
“At my budget, I took the difficult choices to fix the foundations and stabilise our public finances.
“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” Ms Reeves added.
The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector
The UK’s GDP for the the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.
The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.
It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.
The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.
The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.
Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.
The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.
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