Travel guides sale to US billionaire Brad Kelley for £80m less than originally paid was not good business, says BBC Trust

This article is more than 7 years old

This article is more than 7 years old

BBC Worldwide has been criticised by the corporation's governing body for incurring a "significant financial loss", after selling Lonely Planet to US billionaire Brad Kelley for almost £80m less than it paid for the travel guides business.

The corporation's commercial arm sparked a storm of criticism when it acquired Lonely Planet from co-founders Maureen and Tony Wheeler – not least from Time Out founder Tony Elliott – for £130m in two stages in 2007 and 2011.

Tuesday's sale, to Kelley's Nashville-based NC2 Media, for AU$75m (£51.5m), means BBC Worldwide has lost almost £80m on its investment.

The BBC Trust, which under chairman Chris Patten has been seeking to rein in BBC Worldwide's activities over the past year, issued an unusually strongly worded statement on the sale, saying it "did not prove to be a good commercial investment" and urging the commercial arm to learn the appropriate lessons.

"Given the significant financial loss to Worldwide … we have asked the BBC executive to commission a review of lessons learnt and report to the Trust with its findings," said Diane Coyle, vice chairman of the BBC Trust and chair of the strategic approvals committee.

She added that at the time of the deal there was a "credible rationale" for allowing the acquisition, but reiterated that such a purchase would not be given the greenlight again.

"Although this did not prove to be a good commercial investment, [BBC] Worldwide is a very successful business; and at the time of purchase there was a credible rationale for this deal," she said. "The [BBC] Trust's strategy for Worldwide now is to focus on BBC programme content, and [BBC] Worldwide would not make this sort of acquisition again."

The corporation has already written down the value of Lonely Planet by £67m over the last six years to £63m, making the loss on its books about £12m.

"We acquired Lonely Planet in 2007 when both our strategy and the market conditions were quite different," said Paul Dempsey, interim chief executive at BBC Worldwide. "Since then, Lonely Planet has increased its presence in digital, magazine publishing and emerging markets whilst also growing its global market share, despite difficult economic conditions. However, we have also recognised that it no longer fits with our plans to put BBC brands at the heart of our business and have decided to sell the company."

The BBC's ownership of the guide book company coincided with the onset of the global recession, which hit leisure travel hard, and the surging strength of the Australian dollar in recent years.

About 60% of Lonely Planet's costs are incurred in the home market of the Melbourne-headquartered operation, while 80% of revenues are generated outside Australia.

Last year BBC Worldwide conducted a commercial review which determined that its strategy should focus on BBC brands.

In December, MediaGuardian revealed that Lonely Planet was attracting interest from potential US buyers.

The corporation said on Tuesday that the aim has been to find a "new owner that could bring greater focus and capital to the business".

Under the terms of the deal NC2 Media will pay AU$60m (£41.2m) on completion of the deal, and AU$15min one year's time.

NC2 Media, in which Kelley is the primary shareholder, has pledged to invest in the Lonely Planet business.

"With this acquisition comes a global footprint, not only in the travel guide business, but also in magazine publishing and the digital space," said Daniel Houghton, executive director at NC2 Media and new chief operating officer at Lonely Planet. "The challenge and promise before us is to marry the world's greatest travel information and guidebook company with the limitless potential of 21st century digital technology."

Kelley is reported to be worth $1.9bn and has held a range of investments including in Churchill Downs, the home of the Kentucky Derby horse race, as well as being one of the biggest landowners in the US.

In 2011, BBC Worldwide decided to keep full control of Lonely Planet when it struck a £121m deal to offload or licence most of its 33 magazines, which includes Radio Times, to private equity company Exponent.

BBC Worldwide has never revealed if it has made a profit from the Lonely Planet business, with former chief executive John Smith saying that "due to the vagaries of accounting you can't put a [real] value on the brand".

Under BBC ownership Lonely Planet has grown digital revenues from 9% to 27% of total income, has expanded onto TV and launched magazines in 15 international editions.

Nevertheless, the BBC has been dogged by criticism from private sector rivals that it was being too aggressively commercial ever since it invested an initial £88m to take a 75% stake in Lonely Planet in 2007.

The corporation took full control of the business, founded in a Melbourne kitchen in 1972 before growing into arguably the world's best-known travel publisher, when the Wheelers exercised an option to sell their remaining 25% stake to BBC Worldwide for £42.1m in 2011.

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