Embattled newspaper publisher Independent News & Media (IN&M) this afternoon confirmed that it was close to unveiling a financial rescue that would allow the owner of The Independent to pay off an overdue €200 milion bond.

The bailout means that Sir Anthony O'Reilly, the company's controlling shareholder, will see his 28.5 per cent stake diluted by half because bondholders will receive a stake understood to be about 45 per cent of the reconstructed company.

Stage two of the rescue will see IN&M tap all its shareholders for new capital at a price of five cents a share, compared with the existing price of 31 cents, raising money that is expected to be used to provide some cash to the bondholders in addition to the shares.

An outline of the plan was first reported by The Times at the beginning of last week and the company said talks had "advanced significantly" and were close to being finalised subject to "the ultimate agreement of all parties". Independent News & Media opted to go public even though the deal had not been concluded, because details had leaked to several newspapers since.

However, while the company and its bondholders were close to a deal, IN&M will still have to contend with rebel shareholder Denis O'Brien, who hold a 26 per cent stake in the company and has called for an extraordinary meeting to block the rescue plan and instead force the closure of the loss-making British titles.

In a statement, IN&M said that the debt reduction would also come with an extension of the date it must pay back loans and loosened financial covenants to allow it to ride out the grim market for newspapers.

IN&M added: "The company believes that a successful outcome to the restructuring discussions along these lines will provide a capital structure that gives the company suitable time and space to restore equity value and optimally position the business for growth."

It said the debt swap, the rights issue and previously announced disposals would cut debt by about €350 million and would leave the company well placed to benefit from a cyclical recovery.

"The company's strong operating leverage, as a result of significant operating cost reductions over the past two years and continuing business process improvements, should facilitate incremental revenue growth substantially translating into a much improved operating profit performance."

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