The apparently never-ending struggle by Independent News & Media (INM) to reach a deal with its bondholders on the overdue payment of €200 million, is highlighting all kinds of pressure points both within and outside the company.

The biggest pressure is within. The row that was patched up with Denis O’Brien over the direction of the company may be resurfacing.

According to some reports, O’Brien is eager to play hardball with the bondholders, while also addressing the bigger issues facing the company.

He has been the one talking publicly about a 50 per cent chance of achieving a deal. More recently, he was quoted as saying that some of the proposals floating around were ‘‘a band-aid solution where major surgery is required’’.

The big question is whether this apparent division among the main shareholders is real or part of a ‘good cop/bad cop’ routine that may help put pressure on bondholders to agree to a deal.

The signals suggest that there are genuine divisions or tensions around the whole process. Several offers have been put to the bondholders, including paying them a higher coupon or interest rate if they roll over part of the €200 million, offering them some cash upfront or giving them 10 per cent of the €150million INM expects to receive from the sale of some of its non-core investments.

But perhaps the most interesting one of all is the possibility of a rights issue. INM said on June 22 that it was proposing to do a deeply discounted rights issue.

‘‘As part of these discussions, the company has put forward a comprehensive refinancing proposal - while not yet agreed by any stakeholder -which will require all stakeholders making some necessary material concessions in order to achieve significant deleveraging for INM,” the company said.

‘‘One element of this proposal involves INM seeking to raise some capital, subject to shareholder approval, by way of a deeply-discounted rights offering in order to partly repay the bonds.”

The big question here is who would stump up and take up the rights? The current market capitalisation of INM is just over €200million. If the company were to raise, let’s say, €50million from a rights issue, O’Brien would have to put in €12.5 million to avoid being diluted.

Tony O’Reilly would have to put in €14 million.

O’Brien has indicated before that he is not willing to put in €15million to pay off bondholders as part of a deal. But if the discount on the issue of new shares was deep enough O’Brien could end up with a bigger shareholding in the company than O’Reilly by putting in, for example, €20million.He could even go above a 29.9 per cent shareholding if he received a waiver.

Behind the scenes, the company’s actual financial position is somewhat puzzling. When it announced that it had reached a standstill agreement with bondholders, it also announced that it had borrowed a further €15million in working capital for six weeks. It was never clear what this money was for.

It is hard to see a company generating revenues of more than €1.2 bill ion per year requiring an additional €15 million in working capital for six weeks.

Last week, INM announced that it had sold one third of its 20.8 per cent stake in Indian newspaper publisher Jagran Prakashan for €22 million. However, it said the proceeds would be used to pay back the €15 million working capital facility and improve liquidity.

This means it has sold one third of its interest in India to get its balance sheet back to where it was six weeks ago, plus has €7 million for liquidity purposes.

The issue of selling shares in Jagran first surfaced last week, when details of a proposal to the bondholders from INM, published in the Irish Times, referred to the stake as one of the items for sale.

Once published, Jagran shares began to fall and INM had to act quickly. Jagran shares hit a 12month high of 86 rupees on June 4; the proposal letter was dated June 18. However, the shares changed hands at about 70 rupees each. O’Reilly spent the best part of six years building up contacts with the Gupta family in India before he was allowed to invest in their newspaper business.

It is a reflection of the depth of the problems in the group that INM would find itself selling one third of that stake to become just €7 million better off than it was in May.

INM invested about €28 million for its original Jagran stake. However, O’Brien has no such historical attachments. When he refers to ‘‘major surgery’’ being required, does he mean selling off the likes of the India investment? After all, disposing of the entire Jagran stake would have taken in a quarter of the money owed to the bondholders.

In the meantime, other developments are taking place. INM has agreed to throw in its lot with Associated Press and the Irish Times, with the merger of the Herald AM and Metro freesheets. This makes a lot of sense and reflects better on INM than it does on the Irish Times.

Having set up Herald AM as a blocking product against the rival Metro, both sides have lost money. However, accounts for Fortunegreen, the company behind Metro, shows it had retained losses of €11 million at the end of 2007. Herald AM’s losses are likely to be a lot less than that. Merging the two products will probably lead to the establishment of a new investment vehicle in which the three companies - INM, Associated Press and the Irish Times - will each have a one-third shareholding.

This should lead to the crystallisation of the losses in Fortunegreen as the new entity is set up. The Irish Times owns 45 per cent of that company, having spent €900,000 buying its stake.

The deal reflects the huge change in relations between INM and Associated Press, in particular. Both firms share facilities in London and are now joint venture partners in the Dublin freesheet market.

What other divestments are likely to follow?

There has been some speculation that the Irish Star, in which INM has a 50 per cent stake, could be for sale. Express Newspapers owns the other 50 per cent. The Star is very profitable and made profits of €7.2 million in 2007.

The future of the Independent in London is also uncertain. The company has already tried to sell its shareholding in the Australian business, APN, but has now taken it off the market due to lack of interest.

If a deal is not reached with the bondholders by July 27, INM will default on its liabilities, something which would probably trigger an examinership.

This would give it breathing space to sell assets and probably force creditors to write off some debts. It is a reasonable contingency plan but one that, until now, would have seemed unimaginable.