Disposal of SMG Publishing

SMG PLC
23 December 2002



                                    SMG plc

                           Disposal of SMG Publishing


This announcement is being made to coincide with that of Gannett in New York.


Summary



The Board of SMG plc ('SMG' or the 'Company') announces today (23 December,
2002) that it has entered into an agreement with Gannett U.K. Limited ('Gannett
') for the disposal of its publishing business ('SMG Publishing'), for £216
million in cash (the 'Disposal').



SMG Publishing consists of three newspapers: The Herald, Sunday Herald and
Evening Times; a stable of 11 business to business and specialist consumer
magazine titles; and an online advertising and content business.



The Disposal is subject to the approval of SMG's shareholders and of the
Secretary of State for Trade & Industry and the appropriate processes for
seeking such approvals have been initiated.  Accordingly, Gannett's application
has been referred to the Competition Commission, who are expected to report by
10 March, 2003.



The successful completion of this transaction is consistent with SMG's stated
strategy of focusing on the Company's cross-media position in national
advertising markets and will strengthen SMG's balance sheet.  The proceeds of
the sale will be used to reduce SMG's overall debt, with new finance facilities
being put in place and available for drawdown from completion of the sale
through to December, 2005.



The commencement of the SMG Publishing sale process was announced with SMG's
Interim Results on 10 September.  At that time, a decision on the payment of an
interim dividend was deferred until the outcome of the sale of SMG Publishing
was known.  As the sale is still subject to regulatory clearance, it is now the
intention of the SMG Board, subject to the successful completion of the sale, to
propose to pay a combined interim and final dividend for 2002, of 2.5p per share
(2001 Total Dividend: 3.0p per share).



Current Trading and Prospects

The Company and its subsidiaries have seen a modest improvement in trading in
the third quarter of 2002, and are showing further progress through the fourth
quarter.  With continued focus on cost control, it is anticipated that the
Company and its subsidiaries will perform in line with the Board's expectations
for 2002.



Commenting on the announcement, Andrew Flanagan, Chief Executive of SMG, said:



'The sale of our publishing business, in a relatively short space of time, is to
the benefit of everyone involved - readers, advertisers, staff and shareholders.
  This is an excellent price, for an excellent business and I'm confident that
it will continue to thrive under its new owner.



'Having delivered this transaction, SMG's strategy moves firmly forward, with
financial flexibility, into an important period in the development of the UK
communications industry.'



Greenhill & Co. International LLP ('Greenhill & Co.') is acting as financial
adviser to SMG with regard to the Disposal.



                                                               23 December, 2002

Further enquiries:


SMG
Andrew Flanagan, Chief Executive                              Tel: [phone]
George Watt, Group Finance Director
Callum Spreng, Corporate Affairs Director


Greenhill & Co.
Simon Borrows, Managing Director                              Tel: [phone]


Brunswick
James Hogan                                                   Tel: [phone]





Greenhill & Co. International LLP, which is regulated in the UK by the Financial
Services Authority Limited, is acting for SMG plc and no-one else in connection
with the Disposal and will not be responsible to anyone other than SMG plc for
providing the protections afforded to clients of Greenhill & Co. International
LLP or for providing advice in relation to the Disposal or for advising any such
person on the contents of this announcement.



                                    SMG plc

                           Disposal of SMG Publishing

Introduction

The Board of SMG plc ('SMG' or 'the Company') announces today (23 December,
2002) that it has entered into an agreement with Gannett U.K. Limited ('Gannett
') for the disposal of its publishing business ('SMG Publishing') for £216
million in cash ('the Disposal').



In view of its size, the Disposal is conditional upon the approval of SMG's
shareholders, which will be sought at an Extraordinary General Meeting.  A
document giving details of the Extraordinary General Meeting will shortly be
sent to shareholders.  In addition, the Disposal is subject to the approval of
the Secretary of State for Trade and Industry.



The Board believes that the Disposal of SMG Publishing is in the best interests
of Shareholders as a whole.



Background to and reasons for the Disposal

SMG has been actively considering the long-term options open to the Company and
its subsidiaries ('the SMG Group') particularly in light of the prolongation of
the advertising downturn.  Furthermore, the proposed enactment of the
Communications Bill is set to substantially reform much existing media ownership
legislation and, subject to parliamentary approval, is expected to herald a
period of consolidation, particularly in the broadcast media sectors of radio
and television. SMG remains committed to a cross-media approach and this
proposition has seen an increasing level of interest from major advertisers. The
Company believes that cross-media works most effectively where there is
commonality, both of advertisers and geographic coverage.



With the exception of newspapers, all of SMG's media assets - in television,
radio, cinema and outdoor - attract predominantly national advertising as the
geographic coverage of these businesses is also national, albeit in the case of
Television as part of the wider entity, ITV. However, SMG's newspaper business,
offering principally regional advertising in west central Scotland, focuses on
local classified advertisers. SMG is also committed to concentrating the
Company's development on UK media sectors that have shown fastest growth in
recent years.



The Company expects the forthcoming Communications Act to open up opportunities
for the creation of substantial cross-media groups. However, SMG believes that
the new legislation is likely to tighten media ownership regulation at a local
level with an expected emphasis on radio and newspapers.  Upon implementation of
the Act, and in pursuit of the approach outlined above, SMG believes it is
important that the Company has sufficient flexibility - fiscal and regulatory -
to capitalise on the opportunities SMG anticipates will be delivered by the new
Act. In order to pursue such opportunities SMG believes that not only is it
appropriate to focus the SMG Group on its media businesses that operate in
national advertising markets, but that the SMG Group's balance sheet also
requires to be strengthened. As a result of this assessment of the SMG Group's
strategic options, it was announced on 10 September, 2002, that SMG would pursue
the sale of its newspapers - The Herald, Sunday Herald and Evening Times - and
its magazines business.



Following that announcement, SMG entered into discussions with a number of
parties who expressed interest in acquiring these assets. This process has
culminated in agreement being reached with Gannett to acquire SMG Publishing.



The Board believes that the value that will be achieved through the Disposal
compares favourably with that which could be delivered to the shareholders
through continued ownership of SMG Publishing.



Terms of the Disposal

Under the terms of a Sale and Purchase Agreement, which was signed on 23
December 2002, Gannett has conditionally agreed to acquire SMG Publishing (by
the acquisition of the issued shares of Caledonian Publishing Limited, SMG
Sunday Newspapers Limited, SMG Magazines Limited, s1 now Limited, CPB
Consultants Limited, Delphic Interactive Limited, George Outram Limited and the
Glasgow Citizen and Advertiser Limited) for an amount of £216 million in cash
(including an amount for the repayment of debt to the SMG Group (as constituted
after the Disposal)) payable on completion of the Disposal, subject to
adjustment based on the net asset value of SMG Publishing at that time.



In view of its size, the Disposal is conditional upon, inter alia, the approval
of SMG's shareholders at the Extraordinary General Meeting and on appropriate
clearance being obtained from the Secretary of State for Trade and Industry
pursuant to section 58(1) of the Fair Trading Act 1973.  Gannett has applied for
the Secretary of State's consent to acquire SMG Publishing under the special
newspaper mergers regime.  The application falls under the mandatory reference
provisions of that regime.  The Department of Trade and Industry announced on 10
December, 2002, that, accordingly, Gannett's application had been referred to
the Competition Commission and that the Commission will report by 10 March,
2003.



It has been agreed that SMG will become the principal employer under the
Caledonian Publishing Limited Pension Scheme, which will remain with the SMG
Group (as constituted following the Disposal).  SMG has undertaken, on
completion of the Disposal, to make a payment of £10 million into that pension
scheme.  SMG has undertaken to make two further payments (out of its own
resources) of £2.8 million each into the scheme, on 31 March, 2004, and 31
March, 2005, respectively.  SMG will either place £10 million of the sale
proceeds in escrow or make other acceptable security arrangements in respect of
certain pension-related indemnity obligations.  This escrow would, subject to
certain conditions, reduce by £2.5 million in each year.  Further details will
be provided in the Circular to be sent to SMG's shareholders.



Information on SMG Publishing

SMG Publishing is a major publishing business. SMG Newspapers Limited and SMG
Sunday Newspapers Limited publish three of Scotland's most widely read and
popular newspapers, namely The Herald, Sunday Herald and Evening Times.



SMG Magazines Limited and Orpheus Publications Limited publish a wide range of
magazine titles including (amongst others) Scottish Farmer, TGO (formerly The
Great Outdoors), The Strad and Boxing News.  SMG Publishing also includes s1now
- an internet business focused on on-line advertising, specifically in the areas
of recruitment and property in Scotland.



For the year to 31 December, 2001, SMG Publishing had Net Assets of £11.5
million, Turnover of £77.9 million, Operating Profit, before exceptional items,
of £10.9 million and Profit Before Tax of £5.5 million.



Financial effects of the Disposal and application of the sale proceeds

The Net Disposal proceeds of £212 million (after deduction of estimated
transaction costs of £4 million and subject to either the escrow arrangement or
other acceptable security arrangements) will be used to reduce the overall
indebtedness of SMG. Subject to the Disposal and the subsequent receipt of the
proceeds, SMG has agreed new credit facilities of £245 million which will be
available to meet the Company's requirements until December, 2005. These new
facilities will replace existing facilities, which mature on 30 June, 2003.  In
the absence of the Disposal, the existing facilities would require replacement
from 1 July, 2003. The costs of the early repayment of £200 million of these
facilities is estimated, at current interest rates, to be approximately £15
million.  By replacing the existing facilities at this time, the Company expects
to benefit from reduced interest rates, estimated to create savings of £5
million over the three year life of the new facilities.



Current Trading and Prospects

Since the date of the Interim Results, being 30 June, 2002, the SMG Group as a
whole has seen a modest improvement in trading in the third quarter of 2002, and
is showing further progress through the fourth quarter. The SMG Group has
continued to focus on cost control and it is anticipated that the SMG Group (as
constituted after the Disposal) will perform in line with the Board's
expectations for the year.



Other

A document convening an Extraordinary General Meeting and setting out further
details in relation to the Disposal of SMG Publishing will shortly be sent to
SMG's shareholders.

                                                                  December, 2002



Further enquiries:


SMG
Andrew Flanagan, Chief Executive                              Tel: [phone]
George Watt, Group Finance Director
Callum Spreng, Corporate Affairs Director


Greenhill & Co.
Simon Borrows, Managing Director                              Tel: [phone]


Brunswick
James Hogan                                                   Tel: [phone]



Greenhill & Co. International LLP, which is regulated in the UK by the Financial
Services Authority Limited, is acting for SMG plc and no-one else in connection
with the Disposal and will not be responsible to anyone other than SMG plc for
providing the protections afforded to clients of Greenhill & Co. International
LLP or for providing advice in relation to the Disposal or for advising any such
person on the contents of this announcement.


                      This information is provided by RNS
            The company news service from the London Stock Exchange