TPG's opening gambit picks eyes out of Fairfax

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Unwanted Fairfax Media regional, NZ and VOD assets would be assembled in a new company, if a consortium led by TPG Media buys the Australasian publisher.

Regionals group Australian Community Media, the Fairfax New Zealand media business it has been stopped from selling to NZME, Macquarie Media and Stan would be held in a company - called New Media Co - wholly owned by existing Fairfax shareholders, under a proposal outlined to the stock exchange this morning.

The consortium - made up of TPG Group, Ontario Teachers' Pension Plan Board and its affiliates - approached Fairfax last Friday evening with a "non-binding indication of interest".

The bits it wants - in a business to be called Domain Co - include property site Domain, metro dailies the Sydney Morning Herald, The Age and the Australian Financial Review, and the events and digital ventures business, for which a total of 95 cents a share has been offered. That's 25 cents a share less than the whole business is currently trading at.

There is also speculation that the complex separation - which splits publications and other vehicles which are frequently sold to advertisers as a package - may not be possible.

TPG has been hovering around Fairfax for at least a couple of months (see Who gets what as NZ, Domain decisions near the line) with their interest following a Fairfax decision to explore options to split Domain off as a separate company.

Now there are fears that TPG's $2.2 billion assessment undervalues Domain, which has been compared with rival News Corp's realestate.com property site, value of which has been estimated at more than $8 billion.

The TPG consortium would be ducking out of Fairfax's debt, its interest in streaming site Stan, and difficult-to-sell assets such as its Australian regional newspapers and New Zealand publishing business. Its opening gambit effectively picks the eyes out of the business with a proposal made when the publisher is under operational pressure. It comes while Fairfax metro journalists are on strike over proposed cuts, and less than a week after the NZ regulator blocked plans to sell Fairfax NZ to its rival, former APN unit NZME.

An upside is the news that the Australian government appears to have broken the log-jam on support for media law reform.

TPG's "indicative proposal" is subject to conditions including due diligence, shareholder support and regulatory approvals including that of the FIRB. A statement to the ASX this morning says the Fairfax board of directors is reviewing it. The proposed split of businesses "may not optimise shareholder value", Fairfax says, pointing out that there is no certainty the proposal will result in an offer.

The statement says the proposal is based on key assumptions such as Domain having 2017 earnings (EBITDA) of $115 million - described as "being based on broker consensus" - and the other included Fairfax components having 2017 EBITDA of $34 million.

"Deal protection mechanisms" include exclusivity arrangements, no-shop, no-talk, matching rights and break fee arrangements, and there are other terms, such as there being no material adverse change to Fairfax or to financial markets.

It's certainly a complex proposal and leaves many questions unanswered" What happens to Fairfax's other dailies, notably in Canberra, Newcastle and Wollongong, and who gets the print contracts, for example.

Watch this space!

Peter Coleman

Pictured: Fairfax Media chief executive Greg Hywood at last year's Future Forum (picture GXpress)

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