Investors have given a modest thumbs down to the news of a renewed move on Fairfax Media (FXJ) by US buyout group, TPG.
Fairfax shares rose 2.3% to $1.085, the highest they have been since March 29, which is when TPG was last sniffing round the company.
In fact Fairfax Media reported that many of the company’s shareholders say the $2.3 billion highly conditional bid undervalues the company.
The proposal involves TPG and its Canadian partner buying just the Domain property website business, the Sydney Morning Herald, the Melbourne Age and the Financial Review, leaving shareholders with the publisher’s Australian regional and local papers, New Zealand titles, its stake in the Stan online video streaming business and debt.
“It’s an easy thanks but no thanks,” said Lee Mickelburough, head of Australian equities at Henderson Global Investors, which owns about 5% of Fairfax shares, told Fairfax Media.
"It’s a troublesome structure to say that we get 95 cents for the good business and you get to keep the debt for the transition businesses. It’s cheeky, the way they’ve structured it."
And Martin Currie, Australia’s Patrick Potts said the bid for Domain, the publisher’s major metropolitan titles, events and digital ventures undervalues those businesses and leaves Fairfax shareholders structurally challenged assets.
“The current deal basically cherry picks the best assets and Fairfax shareholders are left with assets whose value is hard to work out,” Potts told Fairfax Media.
"Fairfax shareholders are left with the risk around some of those structurally challenged assets. To TPG, I would suggest make an all company bid and they can take the risk around some of those structurally challenges assets in the stub (leftover assets),” Currie added.
The Fairfax board says a demerger would require the approval of shareholders and regulators including the Foreign Investment Review Board – and may be too complex to carry out anyway.
"This proposed split of businesses may not optimise shareholder value," the Fairfax board said in a statement to the ASX. "Fairfax shareholders do not need to take any action in response to the indicative proposal and the Fairfax board will update shareholders when it has been fully assessed.
"There is no certainty the indicative proposal will result in an offer for Fairfax, what the terms of any offer would be, or whether there will be a recommendation by the Fairfax board."
