Struggling Fairfax Media has sold most of its remaining stake in the Southern Star TV production and distribution business at what seems to be a small loss.
Fairfax said the purchase was the Endemol production company now controlled by its original founder, John De Mol, Goldman Sachs and Mediaset, the big media company controlled by Italy’s billionaire Prime Minister, Silvio Berlusconi.
In doing so, Fairfax appears to have taken a loss of around $30 million on the Southern Star investment, which cost it $150 million when it bought it and the mostly AM radio stations of Southern Cross Broadcasting in the latter’s break up in 2007.
The shares were basically steady in yesterday’s sell down, finishing at $1.48, up just half a cent.
Fairfax said in a statement to the ASX that it had sold Southern Star to Endemol for $75 million plus an earn-out. The sale is conditional on obtaining regulatory approvals and certain other matters and is expected to be completed in Q1 2009.
Fairfax Media said it would retain ownership of Southern Star Factual, the UK-based natural history, science and factual producer previously known as Oxford Scientific Films, and its 75% stake in leading UK children’s and interactive producer Darrall Macqueen.
"Combined with the recent sale of Carnival Film and Television Ltd to NBC Universal, Fairfax Media will receive total net cash proceeds of approximately $120 million.
“The sale agreements for the transactions also provide for additional earn-out payments due in three years contingent on business performance. Fairfax Media acquired the Southern Star group, including Carnival, for $150 million.
"The Chairman of Fairfax Media, Mr Ronald Walker said, "This is a welcome transaction in a difficult market. The proceeds will be used to pay down debt and strengthen our balance sheet," the company said.
The value of Southern Star was diminished last year by the cancellation of the Big Brother reality series by the Ten Network here: that cut around $A25 million in revenue a year from the Southern Star/Endemol joint venture which produced the program for 8 years.
Because of the assets being retained and the loss of Big Brother, the best you can say is that Fairfax hasn’t lost much on the Southern Star adventure, but there was no need to do the deal in the first place.
Fairfax didn’t understand Southern Star’s business model and wrongly though it was buying access to content when in fact it was buying a TV distribution business, with some production tacked on here and in the UK.
In mid-2007, Spanish Telco Telefonica announced that it had sold its 75% stake in Endemol to a three-way consortium whose partners are Mediacinco Cartera, a joint venture of Mediaset and Spanish broadcaster Telecino, Cyrte Fund II B.V., an investment fund partly owned by De Mol, and GS Capital Partners VI Fund, owned by Goldman Sachs.
De Mol had sold the company to Telefonica in 1999 and he and his partners paid half the $US7.5 billion original purchase price.
Endemol’s big productions here include Deal or No Deal for the Seven Network and Wipeout for the Nine Network which has a local version starting next month.
In effect Endemol has bought back control of those and other local production and distribution contracts.
Whether it continues to do local productions remains to be seen: the only reason to do so is to localise any new programs it manages to sell to the Australian TV networks and Foxtel.
