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Daily Mail Parent Company Faces Credit Downgrade Risk Over Telegraph Takeover

In a surprise move, Lord Rothermere's Daily Mail and General Trust (DMGT) has announced a £500 million deal to acquire the Telegraph media titles from current owner RedBird IMI. However, the acquisition has raised concerns from credit ratings agency S&P Global, which has placed the parent company, Rothermere Continuation Holdings Ltd (RCHL), on "credit watch" over the potential deal.

According to S&P analysts, the significant valuation of the Telegraph assets, relative to RCHL's "modest size and scale," could "materially increase its adjusted leverage beyond our threshold" if the company takes on substantial debt to fund the transaction. RCHL, the Jersey-based holding company for Lord Rothermere's media assets, including the Daily Mail, Mail on Sunday, Metro and the i Paper, currently holds a BB- long-term issuer credit rating from S&P.

The ratings agency warned that the "detail and funding of the transaction remain unclear," but expressed concerns about RCHL's "limited headroom" to accommodate additional financial debt, given the structural challenges facing the print media industry. The Telegraph titles are seen as operating in "structurally challenged newsprint and advertising markets," potentially adding further strain to RCHL's balance sheet.

The proposed £500 million price tag for the Telegraph represents a significant investment for DMGT, which will need to secure appropriate financing to complete the deal. Industry analysts note that the valuation reflects the continued decline of traditional print media assets, with the Telegraph titles likely commanding a lower multiple compared to previous transactions in the sector.

The acquisition comes as DMGT seeks to bolster its position in the UK media landscape, potentially leveraging the Telegraph's brand and audience to drive synergies with its existing portfolio. However, the ratings warning from S&P highlights the financial risks associated with such a transformative deal, particularly given the broader headwinds facing the print media industry.

Investors and industry observers will be closely monitoring the progress of the proposed transaction and any potential impact on RCHL's credit profile in the coming weeks as the company works to finalize the funding arrangements.