Lazard refuses to underwrite legal fees in battle for The Telegraph

Hollinger International’s financial adviser Lazard has told bidders that it will not underwrite legal fees on the auction of The Telegraph, despite the fact that the deal is a risky prospect. Many of the bidders are now trying to pass some of the cost on to their external legal advisers.

Private equity bidders expect abort discounts, but trade bidders Associated Newspapers and Northern & Shell have already spoken to their law firms, Freshfields Bruckhaus Deringer and Ashurst respectively, about fee discounts.

Various private equity houses, including Clifford Chance client Candover and 3i are also considering a bid. Many top City firms are advising. It has emerged that Mayer Brown Rowe & Maw is acting on a bid which is not yet public, while Allen & Overy and Linklaters have bit parts.

Contrary to reports, The Telegraph auction is at a preliminary stage and many bidders have not seen the books so bids are weeks away. Lazard has asked bidders to sign a standstill agreement barring them from buying Hollinger shares in an attempt to bypass the auction process. While not unusual, the provision has been criticised as aggressive as Lazard will not even know whether The Telegraph can be sold until Hollinger’s US litigation is concluded.

It is also believed that Associated Newspapers and Northern & Shell are seriously considering making an unconditional bid for the newspaper, without prior clearance from media regulator Ofcom.

Last year’s Competition Act allowed newspaper owners to acquire another paper without prior clearance for the first time. However, there is considerable commercial risk in this strategy as the regulator could block the deal retrospectively. In that case, a trade bidder would be forced to sell off the paper at a considerable loss.

A spokesperson for Daily Mail and General Trust Group, part of Associated Newspapers, said: “We’re considering our options.” Northern & Shell declined to comment.

The strategy is more risky for Associated Newspapers, which has a bigger market share and is a publicly quoted company that must get shareholder approval before it takes the gamble.