It shouldn’t be too hard for the Fairfax Media board to cut the 20c a share dividend to boost cashflow and the share price and get all those analysts and moaning fund managers off their back.
In fact, cutting dividend by half to 10c a share will save tens of millions of dollars in cash outgoings and boost the share price.
This should be done at tomorrow’s board meeting in Sydney which will also choose a new CEO. Brian McCarthy is the hot tip to replace David Kirk who quit last Friday.
Judging from the sharemarket reaction yesterday, there are some doubts still about Fairfax. The shares sank 9c to $US1.375 in a market that was up yesterday before recovering in the afternoon to close at $1.45, down 1.5c.
There doesn’t seem to be an awful lot of confidence around about Fairfax.
Small shareholders might not like a dividend cut, but in today’s tough credit climate and slumping advertising market, it is one of the few positives Fairfax has going for it.
As we have just read from the accompanying article on the ANZ job figures for November, a near 43% fall in newspaper job ads over the past year will make a big hole in the profit line of even the strongest company.
Fairfax is paying 20c a share at the moment as part of the commitment to pay out 80% of earnings to shareholders. Earnings per share in 2008 were just over 24c and it had cashflow of around 27c a share.
It paid out around $A302 million in dividends in 2008, so a 50% chop to 10c a share would save $151 million, which would go to pay debt down more quickly.
In considering how far to cut, Fairfax tomorrow could do worse than look at the experience of the struggling New York Times.
Its share price is up 24% from when it cut its quarterly payout by 74% last month. The shares finished at $US7.64 on Friday: they were at $5.34 the day the dividend was cut to 6 USc a share per quarter from 23 USc on November 21.
(A 74% for Fairfax would see over $220 million saved annually for as long as the cut remained in force.)
The move by the New York Times is believed to have boosted free cash flow by an annual $US100 million, which the company said it was taking (as) a $US50 million hit for the net cost of closing a distribution business in New York which was losing $US30 million a year.
Its latest quarterly filing said the New York Times Company only had $US46 million in cash in the bank at the end of the quarter.
Given that, the company says it is working with creditors to "manage" its debt obligations, but it has yet to explain how it plans to come up with the $US400 million it needs to find in May to fix up a debt payment.
It has around $US1.1 billion (around $A1.5 billion) in total debt, less than the $A2.5 billion Fairfax has.
The dividend was cut on all classes of shares, including those of the controlling Ochs-Sulzberger families. They own a special class of shares that gives them more control over the company than non-family shareholders (like News Corporation and Rupert Murdoch).
The big decision tomorrow for Fairfax will be to name noted cost cutter and anti-journalist Brian McCarthy as full time CEO. If there’s a hiccup, watch the share price tank to $1 or less.
Media groups around the world battling to survive will be watching the US based Tribune Co and its battle to remain out of bankruptcy.
That looks like a failing fight: the Chicago-based newspaper and television company has been badly hurt by the slump in advertising and the economy and is in talks to reorganize its debt and may file for bankruptcy as soon as this week in what would be the biggest media failure in (the US) for sometime.
The news was reported by the Wall Street Journal.
The paper said the company had hired investment bank, Lazard Ltd. as financial adviser in preparation for a filing. It previously had talked about hiring financial advisers to avoid bankruptcy, but that would seem not to be an option any more.
The Tribune Co was bought by Chicago businessman, Sam Zell, using his money, borrowed funds and a financing technique that gave equity to employees, but no real power.
Total debt is put at around $US11.8 billion at the end of the September quarter.
The company said "interest expense related to continuing operations increased to $US232 million in the 2008 third quarter from $US175 million in the third quarter of 2007 primarily due to higher debt levels, partially offset by lower interest rates".
So with revenues from ads and sales, and earnings crunching, it’s no wonder the company is close to collapse and needs a circuit breaker like the Chapter 11 process.
Its website describes the company as the "largest employee-owned media company in the US.
"TRIBUNE is America’s largest employee-owned media company, operating businesses in publishing, interactive and broadcasting, including ten daily newspapers and commuter tabloids, 23 television stations, WGN America, WGN-AM and the Chicago Cubs baseball team."
It owns the Los Angeles Times, which has been cutting staff, as has the Chicago Tribune.
Earlier this year it sold the Newsday paper on Long Island to Cablevision, the New York based cable TV company for a reported $US632 million.
Chapter 11 will help the company cut its huge debt load, retrench staff and make other cost cuts, but it won’t help boost advertising revenues, or stop the drift to the internet.
The company reported in its third quarter earnings statement in October: "a third quarter 2008 l
