Lombard

December 3, 2012 1:04 pm

Time for GMG to sell Auto Trader stake

Sale would give Guardian Media a nest egg an ostrich would envy

The Guardian and Auto Trader resemble a social worker and a second-hand car dealer handcuffed together as someone’s cruel idea of a joke.

The holding company of the politically-correct newspaper has a stake of just over 50 per cent in the used motors marketplace, in whose milieu cyclists are despised and Jeremy Clarkson is a thought leader. Apax, co-owner of Auto Trader, is reputedly keen to buy. Isn’t it time for Guardian Media Group to sell?

Fundamental incompatibility aside, a disposal would give GMG a nest egg an ostrich would envy. The stake is valued at around £600m by the City. Profitable Auto Trader is “the only old media business to have become a big success digitally by cannibalising its print version”, says media analyst Lorna Tilbian of Numis. In contrast, The Guardian, while hot as mustard on social justice, is a bit vague on the need to make a profit. For example, it gives away its journalism for free on the web.

GMG hopes to narrow operating losses that stood at £44.2m last year to single figures in four years. The group aims to cut costs and somehow increase digital revenues. That strategy is likely to fail, depleting the hefty reserves of The Scott Trust, guarantor of the newspaper’s financial and editorial independence.

The argument for GMG to sell now, rather than later, is that Auto Trader’s value looks set to fall. Its margins are vulnerable to competition from rivals such as driving.co.uk, a Times venture fronted by the denim-straining Mr Clarkson.

It would be in the interests of media plurality for the group to take the money. The Guardian should meanwhile risk the wrath of entitlement-bloated internet trolls and erect a paywall. But there is perhaps an implicit contradiction in expecting a middle-class socialist to pursue financial self-interest with any vigour.

Clampdown defrothed

Online shopping supposedly hit a pre-Christmas peak on Monday, with sales close to £500m, according to Experian. Plenty of the total will go through the UK website of Amazon, one of three US multinationals whose minimalist approach to paying UK corporation tax has prompted George Osborne to announce £77m in extra spending on anti-avoidance.

The laws which allowed Amazon to pay just £1.8m in local corporation tax in 2011 date back to the 19th century, according to John Whiting of the Chartered Institute of Taxation. They established the principle that a tax charge occurred in the country where a sale was made. As a result, British consumers transact online with Amazon’s subsidiary in lightly-taxed Luxembourg, not the UK offshoot that picks and packs their Christmas gifts.

Thanks to a similar set-up, Google, a big vendor of advertising services to British business, paid UK corporation tax of just £6m in 2011. Its billing subsidiary is based in Ireland, another low-tax regime.

The “clampdown” announced by the Treasury Monday will have zero impact on online operators such as Amazon and Google, says Michael Devereux of Oxford University. Nations would need to renegotiate their tax treaties to close the loophole.

An aggressive stance might extract more tax from high street retailers such as Starbucks , though. Inter-group transfers approved by HM Revenue & Customs are responsible for the bulk, and perhaps even the totality, of UK losses that exempt the group from corporation tax. The embarrassed coffee vendor already appears willing to reduce these transfers.

Handsome stranger

When an organisation is in trouble, the solution is often deemed to be an externally-hired boss. For example, specialist engineer Lamprell has hired James Moffat of Texan contractor KBR Group, as its new chief executive.

The assumption embodied by such appointments is that if internal candidates were any good, the business would not be in a pickle. That certainly rings true for Lamprell. This year the group has issued profit warnings at a rate to rival Sally Bercow’s output of actionable tweets. The problems have ranged from a shortage of oil rig components to hold-ups in the construction of wind farm service vessels. Management has had a poor record in spotting these coming. The top tier of executives has stepped down.

The challenge facing Mr Moffat when he starts in March will be to create lines of reporting better than those that let his predecessor down. The market will not know definitively whether he has succeeded. A hiatus in profits warnings could reflect an absence of bad luck rather than shrewd evasive action. But investors in a stock that has fallen three quarters since May would welcome any stabilisation in the business.

jonathan.guthrie@ft.com

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