Fairfax (FXJ) shares eased 3.6% yesterday to $1.055, despite leaks that TPG, the US owned private equity group had arranged “a billion dollar plus debt package” (according to Fairfax Media).
More than 25.3 million shares were traded yesterday, taking the total so far this week to more than 76 million. That was the highest one day volume since last year when more than 58 million trades were traded on August 10.
Fairfax also reported that "TPG’s banking syndicate, led by Credit Suisse’s Michael Stock, is believed to have funding in place at 4.5 times earnings before interest, tax, depreciation and amortisation (EBITDA). JPMorgan is also on board. Peter Cook, a partner at Gilbert + Tobin, is also on the deal.”
Fairfax also reported that "Based on Fairfax’s 2016 earnings, this would give TPG access to more than $1.2 billion in debt to fund a takeover bid. Fairfax’s current market capitalisation is $2.5 billion.”
Seeing most shareholders would want a bid much higher than current prices – several have mentioned $1.50 a share. If that is the price, TPG will need to find well over $3.4 billion.
Obviously TPG and its cast of market shills would argue is to much, but Domain – the big attraction for TPG – is a one off asset and Fairfax directors know they have to maximise the price for company’s best asset. And so do some level headed investors.
Media reports claim TPG wants to pay around $1.15 a share which values the company at $2.6 billion. $1.30 a share values Fairfax at $3 billion.
TPG wants the Domain real estate website business. It has also been shopping for a buyer for the media assets, initially contemplating partnering with a non-equity consortium member on an offer but later decided against that approach, according to Fairfax Media.
Fairfax announced on February 22 in its interim results that it was spinning off Domain into a separately-listed company. The shares jumped 8% from 87 cents the day before to close at 94 cents on the 22nd. They have since run up to the six year high of $1.15 on Wednesday.
The price run up has halted TPG’s takeover ambitions and t is now trying to put together another structure.
TPG needs to get the Fairfax share price down, so don’t be surprised if the ‘market stories turn negative about Fairfax.
About $2 billion of Fairfax’s total market value of $2.43 billion (at yesterday’s close) is in Domain.
